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TITLE 7BANKING AND SECURITIES
PART 2TEXAS DEPARTMENT OF BANKING
CHAPTER 15CORPORATE ACTIVITIES
SUBCHAPTER ECHANGE OF CONTROL APPLICATIONS
RULE §15.81Application for Acquisition or Change of Control of State Bank

(a) Definitions. Words and terms used in this chapter that are defined in the Finance Code, Title 3, Subtitle A, have the same meanings as defined in the Finance Code.

(b) General. Without the prior written consent of the banking commissioner, a person or entity may not, directly or indirectly, acquire a legal or beneficial interest in voting securities of a state bank or a corporation or other entity owning voting securities of a state bank if, after the acquisition, the person or entity would control the state bank. Except as otherwise provided in this section, an application must be filed with the banking commissioner for review and consideration of the proposed transaction.

(c) Form of application. The applicant must submit a fully completed, verified application in a form prescribed by the banking commissioner and simultaneously tender the required filing fee pursuant to §15.2 of this title (relating to Filing and Investigation Fees). The Interagency Notice of Change of Control and the Interagency Biographical and Financial Report may be submitted in lieu of the commissioner prescribed forms if they are accompanied by the executed and notarized signature pages of the commissioner prescribed forms. The application must, except to the extent expressly waived in writing by the banking commissioner, disclose:

  (1) the identity, biographical data, business background, and experience relating to banking matters, and a current statement of financial condition, a statement of changes in net worth and a statement of cash flows of each person by whom, or on whose behalf, the acquisition is to be made and by each person acting in concert with others seeking to acquire voting securities subject to the Finance Code and to this section. Financial statements will be considered current if audited and dated within 180 days of the date of the application or will be considered current if unaudited and dated within 90 days of the date of the application. All financial statements must be accompanied by an affidavit of no material change dated as of the date of application;

  (2) a completed authorization to release employment, financial, credit, fingerprint information and criminal history records to the department;

  (3) a completed confirmation inquiry form;

  (4) the identity of each entity other than a natural person seeking to acquire control or working in concert with others to acquire control of a state bank or bank holding company and a copy of the entity's most recent audited financial statement. Financial statements will be considered current if audited and dated within 180 days of the date of the application or will be considered current if unaudited and dated within 90 days of the date of the application. All financial statements must be accompanied by an affidavit of no material change dated as of the date of application;

  (5) a description of all material, pending or adjudicated legal or administrative proceedings in which each acquiring person or entity is or was a party. A material legal proceeding includes a proceeding in which the person or entity has been charged with, cited for, or convicted under a state or federal law relating to banking or other financial institutions, securities or financial instrument reporting, or a felony or crime involving moral turpitude under the laws of a state, the United States, or another country. A material legal proceeding also includes a proceeding that resulted in a material unsatisfied judgment, or may result in a judgment, against the acquiring person or entity and this loss contingency must be disclosed in the financial statements of the acquiring person or entity under generally accepted accounting principles, or is otherwise material. A material administrative proceeding includes a proceeding in which the person or entity is or has been subject to a cease and desist, removal, enforcement, or other order, including an order of supervision or conservatorship issued by a state, federal, or foreign regulatory agency;

  (6) the terms and conditions of the proposed acquisition or change of control and the manner in which the acquisition or change of control is to be made;

  (7) the identity, source, and amount of the funds or other consideration used or to be used in making the acquisition or change of control;

  (8) if a portion of the funds or other consideration to be used in making the acquisition has been borrowed or is to be borrowed or otherwise obtained for the purpose of making the acquisition, a complete description of the transaction, the names of the parties to the transaction, and a summary of all arrangements, agreements, or understandings with the parties including terms of repayment;

  (9) the applicant's current or proposed business or strategic plan including amendments to a current plan;

  (10) plans or proposals to liquidate the state bank or bank holding company, to sell its assets or merge it with another bank or holding company, or to make other major changes in its business, corporate structure, or management;

  (11) plans or proposals to change officers and directors of the state bank or bank holding company and the related bank or financial institution management experience of proposed or current officers and directors;

  (12) the terms and conditions of an offer, invitation, agreement, or arrangement under which a voting security will be acquired and any contract affecting the security or its financing after it is acquired;

  (13) pro forma financial statements with projections indicating whether the acquired or controlled state bank or bank holding company will be adequately capitalized for a period of not less than two years from the date of acquisition; and

  (14) other information that the banking commissioner, in the exercise of discretion, considers necessary to make an informed decision to approve or reject the proposed acquisition. The applicant must supply all material information necessary for the banking commissioner to make a fully informed decision on the application.

(d) Public notice. Not later than 21 days from the date the banking commissioner notifies the applicant of acceptance of the initial application, the applicant must publish notice as required by the Finance Code, §33.002(d), and §15.5 of this title (relating to Public Notice) in the county where the state bank's or bank holding company's home office is located. One publication under this subsection is adequate unless the banking commissioner expressly requires additional notice.

(e) Confidentiality. Information obtained by the banking commissioner under this section is confidential and may not be disclosed by the banking commissioner or an officer or employee of the department, subject only to disclosure as may be permitted by the Finance Code, §§31.301 - 31.308 or 33.002(d), or by §3.111 of this title (relating to Confidential Information).

(f) Grandfather clause. A person or entity considered to be in control solely as a result of changed standards in the Texas Banking Act as effective September 1, 1995 (codified as Finance Code, Title 3, Subtitle A, effective September 1, 1997), is exempt from filing an application under this section as long as the person or entity was in compliance with applicable law immediately prior to September 1, 1995, and has not acquired additional shares of voting securities on or after September 1, 1995. This subsection specifically applies to a principal shareholder or principal participant of a state bank or bank holding company that directly or indirectly owns or has the power to vote a greater percentage of voting securities of the state bank or holding company than another shareholder or participant.

(g) Exemptions. In addition to the acquisitions specifically exempted pursuant to the Finance Code, §33.005, these involuntary acquisitions of control do not require prior written approval of the banking commissioner pursuant to the Finance Code, §33.001:

  (1) the inadvertent acquisition of control of a state bank or bank holding company by a shareholder as a result of a stock redemption or repurchase by the issuer if the potential controlling shareholder or participant of a state bank or bank holding company did not vote or have any direct or indirect input into the issuer's decision to repurchase or redeem the voting securities;

  (2) the acquisition and control by a qualified employee stock ownership plan (ESOP) of less than 25% of voting securities of a state bank or bank holding company unless an officer, director, or principal shareholder or participant directly or indirectly controls the voting securities held by the ESOP, in which event an application for acquisition of control must be filed by the officer, director or principal shareholder or participant, if as a result that person would control over 25% of the voting securities;

  (3) the acquisition of control of a state bank as a result of a shareholder receiving proportionate voting securities in a state bank arising from the liquidation of a bank holding company;

  (4) the acquisition of additional shares of voting securities of a state bank or bank holding company by virtue of a pro-rata stock dividend or stock split not resulting in increased ownership percentage;

  (5) the acquisition of control of a state bank or bank holding company as a result of a gift made in good faith, provided:

    (A) the donee is related to the donor within the second degree of consanguinity or affinity;

    (B) neither the donor nor donee is under an enforcement order; and

    (C) notice of the gift is given to the banking commissioner pursuant to subsection (h) of this section; and

  (6) the acquisition of control of a state bank or bank holding company as a result of the transfer of voting securities by gift to a limited partnership or other estate planning vehicle, if determined by the banking commissioner to have an equivalent effect, if:

    (A) the limited partnership owns no other voting securities other than the securities transferred;

    (B) the donor is the sole general partner of the limited partnership who retains sole voting authority over the voting securities;

    (C) neither the donor nor donee is under an enforcement order; and

    (D) notice of the gift is given to the banking commissioner pursuant to subsection (h) of this section.

(h) Notices in lieu of filing. If an applicant is not required to file an application because of an exemption under the Finance Code, §33.005, or subsection (g) of this section, but is required to file an application with a federal regulatory authority or a regulatory authority of another state, a copy of that application must be filed with the banking commissioner within seven days of the date of filing it with the federal or state agency. A notice in lieu of filing is required of a person claiming an exemption under the Finance Code, §33.005(1) or (3), or subsection (g)(5) or (6) of this section. This notice must be filed before the securities acquired are voted and must be accompanied by a completed authorization pursuant to subsection (c)(2) of this section. No filing fees are required for notices filed under this section; however, if the banking commissioner determines that an application is required, the appropriate filing fee pursuant to §15.2 of this title is required.

(i) Approval. Automatic approval; conditional approval. If an application filed under this section is not approved by the banking commissioner or is not set for hearing on or before the 60th day after the date notice is published, the transaction may be consummated. Before the expiration of the initial 60-day period, the banking commissioner may give the applicant written notice that the application is approved; upon receipt of the notice, the applicant may immediately consummate the transaction. Before the expiration of the initial 60-day period, the banking commissioner may also give an applicant written notice that the application is conditionally approved subject to certain conditions. The applicant must enter into a written agreement with the banking commissioner concerning these conditions on or before the 30th day after the date the applicant receives notification of conditional approval. An agreement entered into by the applicant and the banking commissioner concerning conditional approval is enforceable against the applicant and the bank and is considered for all purposes an agreement under the provisions of the Finance Code. If an applicant receives conditional approval, but does not enter into an agreement with the banking commissioner as required by this subsection, the banking commissioner will set the matter for hearing.

(j) Consummation of an acquisition or change of control transaction. The acquisition or change of control of the voting securities must be consummated as proposed in the application, in the agreement concerning conditional approval as provided in subsection (i) of this section, or as provided in a final order pursuant to subsection (m) of this section. A transaction approved or conditionally approved under this section must be consummated within 12 months after the date of approval by the banking commissioner unless an extension is granted in writing. Until a transaction is consummated, the banking commissioner reserves the right to alter, suspend or withdraw approval if an interim development warrants it.

Cont'd...

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