Proposed Rules Title 7

TITLE 7. BANKING AND SECURITIES

SUBCHAPTER A. FEES AND OTHER PROVISIONS OF GENERAL APPLICABILITY

The Finance Commission of Texas (the commission), on behalf of the Texas Department of Banking (the department), proposes to amend Subchapter A of Chapter 15 of Title 7 of the Texas Administrative Code, §§15.1, 15.3 - 15.7, concerning corporate activities by state banks. The amended rules are proposed to conform the rules to changes in applicable federal regulation and improve clarity.

Subchapter A of Chapter 15 provides general rules for corporate activities of state banks subject to the Texas Finance Code (Finance Code). Section 15.1 provides various definitions for Chapter 15 that incorporate various concepts and standards from other laws, including federal banking regulations, to ensure clear, consistent, and fair regulation with minimal additional burden. A citation in §15.1 to a federal regulation defining "well capitalized" is no longer correct and needs to be updated. Similarly, §15.3, which governs expedited corporate filings, provides a citation the same federal banking regulation, and also needs to be updated. Rather citing the current federal regulation, the underlying federal statute defining "well capitalized" can be cited instead. Changing these citations would not materially change the substance of these rules. In addition, state banks are already subject to these federal regulatory standards.

Section 15.4 discusses required information for filings and potential abandonment of incomplete filings. The proposed amendment to this section clarifies the process for determining that a previously accepted filing is abandoned due to the filer not timely paying additional fees or costs that may be required under existing law and regulation, such as application investigation fees.

Section 15.5 governs public notice requirements for certain filings. Subsection (e) contains a reference to a definition that has been removed from §15.1. Further, subsection (e) is redundant of subsection (a). Subsection (e) provides the Banking Commissioner (commissioner) with specific discretion to waive public notice requirements for a filing where public notice has been required and provided by another regulator. Subsection (a) provides the commissioner with more general discretion to find that any alternative form of publication is acceptable, which could include the alternative publication currently described in subsection (e). For these reasons, deletion of subsection (e) of §15.5 is appropriate.

Section 15.6 discusses applications for state bank charters. It contains a typographical error that needs to be corrected.

Section 15.7 discusses submission of documents in general, and submission of reproductions of documents in particular. This section should be amended to expressly apply both to original documents and to reproductions, where appropriate. Another appropriate amendment updates the name of the non-depository supervision division of the department. Finally, this section should amended to address electronic filings in all forms, and to clarify the rules on when filings of all types are deemed to be received by the department.

Daniel Frasier, Director of Corporate Activities and Financial Innovation, has determined that for the first five years the proposed amended rules are in effect, there will be no foreseeable increases or reductions in costs or other fiscal implications to state or local government as a result of enforcing or administering the rules as amended.

Director Frasier has further determined that for the first five years the proposed amended rules are in effect, the public benefit anticipated from enforcing the rules is ensuring that the Finance Code corporate activities requirements will be enforced for the benefit of banks and their constituents in a manner that is clear and not unnecessarily complex, and consistent with applicable federal regulations.

Director Frasier has also determined that for the first five years the proposed amended rules are in effect the economic costs to persons required to comply with the rules as proposed will be unchanged from the costs required under these rules as they currently exist.

In addition, Director Frasier has determined that for the first five years the proposed amended rules are in effect, the rules will not: create or eliminate a government program; require the creation of new department employee positions or the elimination of existing agency employee positions; require an increase or decrease in future legislative appropriations to the department; require an increase or decrease in fees paid to the department; create a new regulation; or increase or decrease the number of individuals subject to the rules' applicability.

Finally, Director Frasier has determined that there will be no adverse economic effect on small businesses, micro-businesses, or rural communities from the proposed amended rules and no difference in the cost of compliance for these entities.

To be considered, comments on the proposed amendments must be submitted to the department in writing no later than 5:00 p.m. on January 29, 2024. Comments should be addressed to General Counsel, Texas Department of Banking, Legal Division, 2601 North Lamar Boulevard, Suite 300, Austin, Texas 78705-4294. Comments may also be submitted by email to legal@dob.texas.gov.

This proposal is made under the authority of Finance Code §11.301 which authorizes the commission to adopt rules applicable to state banks, and Finance Code, §31.003, which authorizes the commission to adopt rules necessary to preserve or protect the safety and soundness of state banks.

This proposal affects the statutes administered and enforced by the department's commissioner with respect to state banks, contained in Finance Code, Subtitle A. No other statute is affected by this proposal.

§15.1.Definitions.

Words and terms used in this chapter that are defined in the Finance Code, Title 3, Subtitle A or Subtitle G, have the same meanings as defined in the Finance Code. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) - (3) (No change.)

(4) Eligible bank--A state bank that:

(A) is well capitalized as defined in Section 38, Federal Deposit Insurance Act, 12 USC §1831o [~~12 Code of Federal Regulations (CFR), §325.103~~], or is operating in compliance with a capital plan approved in writing by the banking commissioner;

(B) received a composite rating of either 1 or 2 as defined by the Uniform Financial Institutions Rating System at the most recent examination by the department or federal regulatory agencies;

(C) received a CRA rating of either outstanding or satisfactory at the bank's most recent inspection by the appropriate federal regulatory agency;

(D) is not presently operating in violation of a regulatory condition or commitment letter imposed by a state or federal banking regulatory agency; and

(E) is not presently operating under a memorandum of understanding; determination letter or other notice of determination; order to cease and desist, or other state or federal administrative enforcement order issued by a state or federal banking regulatory agency.

(5) - (9) (No change.)

§15.3.Expedited Filings.

(a) (No change.)

(b) Notwithstanding another provision of this section, the banking commissioner may deny expedited filing treatment to an eligible bank, in the exercise of discretion, if the banking commissioner finds that the filing involves one or more of the following:

(1) the proposed transaction involves significant policy, supervisory, or legal issues;

(2) approval of the proposed transaction is contingent on additional statutory or regulatory approval by the banking commissioner or another state or federal regulatory agency;

(3) the proposed transaction will result in a fixed asset investment in excess of the limitation contained in the Finance Code, §34.002(a);

(4) the proposed transaction requires the approval of the banking commissioner under the Finance Code, §33.109(b);

(5) the proposed transaction involves an issue of parity between state and national banks pursuant to the Finance Code, §32.009;

(6) the proposed transaction significantly impacts the strategic plan of the bank;

(7) the proposed transaction will result in a decrease in capital below the levels required to qualify as an eligible bank [~~meet the definition of "well capitalized" in 12 Code of Federal Regulations, §325.103~~];

(8) the proposed transaction will result in an abandonment of the community pursuant to the Finance Code, §32.202(d);

(9) the proposed transaction involves an issue of regulatory concern as determined by the banking commissioner in the exercise of discretion; or

(10) the application is deficient and specific additional information is required, or the filing fee has not been paid.

§15.4.Required Information and Abandoned Filings.

(a) - (c) (No change.)

(d) Abandoned filing. The banking commissioner may determine any submitted or accepted filing to be abandoned, without prejudice to the right to refile, if the information required by the Finance Code, this chapter, or any rule or regulation adopted pursuant to the Finance Code, or additional requested information, is not furnished within the time period specified by subsection (c) of this section or as requested by the department, [~~banking commissioner~~] in writing, to the person or entity making the submission. The banking commissioner may determine a submitted or accepted filing, for which additional fees or costs are required by the Finance Code or by this chapter [~~are not paid within 30 days of receipt of the initial submission~~] to be abandoned if those amounts are not paid by the deadline stated by the department, which shall be at least 14 days from the date the deadline is communicated in writing to the applicant.

(e) (No change.)

§15.5.Public Notice.

(a) - (d) (No change.)

[(e) Other acceptable public notice. The banking commissioner may determine that public notice required by another regulatory agency of a bank or other regulated entity satisfies the public notice requirements of this section. For example, if a state bank converts, merges, or organizes into a financial institution that is no longer regulated by the banking commissioner and the banking commissioner determines that public notice requirements imposed by the successor regulatory authority regarding the conversion, merger, or organization satisfy the notice requirements of the Act and this section, the banking commissioner may permit the notice required by the successor regulatory authority to serve as notice under the Act and this section.]

§15.6.Applications for Bank Charter: Notices to Applicants; Application Processing Times; Appeals.

(a) - (c) (No change.)

(d) Violation of Processing Times. If an application is not protested [~~pretested~~] or a hearing is not convened, an applicant may appeal directly to the banking commissioner for a timely resolution of a dispute arising from a violation of a processing period set forth in this section. An applicant may appeal by filing a written request with the banking commissioner on or before the 30th day after the date the decision is made on the application, requesting review by the banking commissioner to determine whether the established period for the granting or denying of the application has been exceeded. The decision on the appeal shall be based on the written appeal filed by the applicant, any response by the department, and any agreements between the parties. The banking commissioner may convene a hearing to take evidence on the matter.

(e) (No change.)

§15.7.Submission of Documents and Reproductions.

(a) Scope. This section governs submission of [~~specified forms of copies of original~~] documents to the department, [~~Texas Department of Banking (the department )~~] for processing by the corporate activities division of the department, pursuant to this chapter, and does not permit, prohibit, or affect correspondence with or documents submitted to, the department for another purpose, including:

(1) applications submitted to the non-depository supervision [~~special audits~~] division of the department; and

(2) documents submitted to the department as required or permitted by Government Code, Chapter 2001, and Chapter 9 of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings).

(b) Reproduction. For purposes of this section, the term reproduction means:

(1) a photographic or photostatic copy or similar reproduction of an original document that is submitted to the department by mail or hand delivery;

(2) a facsimile copy of an original document submitted by telephonic document transmission to the fax number specified by the department; or

(3) if permitted by the department with respect to a specific filing, an electronic copy of an original document submitted by electronic means as authorized [~~to the email address specified~~] by the department.

(d) Page limitations. A document [~~reproduction~~ ] submitted by telephonic document transmission to the department's fax machine may not exceed 25 pages in total length, including the transmittal document required by subsection (e) of this section, or it will be rejected for filing. The transmission of portions of any particular filing at different times is treated as one reproduction for purposes of this subsection.

(e) (No change.)

(f) Time of receipt. To be considered received by the department, a document [~~reproduction~~] must be in clearly legible form. Documents submitted by mail or hand delivery must be delivered during regular business hours of the department. For documents submitted by mail or hand delivery, the date and time the submission is actually received by the department will determine the time of receipt. For reproductions submitted by telephonic document transmission, [or] the date and time imprinted by the department's fax machine on the last page of a reproduction submitted by telephonic document transfer will determine the time of receipt. [~~, provided that a~~] For reproductions submitted by email, the date and time reflected by the department's email system will determine the time of receipt. Any document [~~reproduction~~] received after 4:30 p.m. on a business day, or on a non-business day, is considered received at 8:00 a.m. on the next business day. A document [~~reproduction~~] will not be considered received until the department receives the entire document and the required filing fee, if any.

(g) (No change.)

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 15, 2023.

TRD-202304817

Robert K. Nichols, III

General Counsel

Texas Department of Banking

Earliest possible date of adoption: January 28, 2024

For further information, please call: (512) 475-1382

SUBCHAPTER F. APPLICATIONS FOR MERGER, CONVERSION, AND PURCHASE OR SALE OF ASSETS

7 TAC §15.103

The Finance Commission of Texas (the commission), on behalf of the Texas Department of Banking (the department), proposes to amend Subchapter F of Chapter 15 of Title 7 of the Texas Administrative Code, §15.103, concerning corporate activities by state banks. The amended rule is proposed to conform the rule to changes in applicable federal regulation.

Subchapter F of Chapter 15 governs applications for merger, conversion, or purchase of assets relating to state banks subject to the Texas Finance Code (Finance Code). Section 15.103 permits expedited filings for these applications if they relate to "well capitalized" state banks as defined under federal regulation. The citation in §15.103 to this federal regulation is no longer correct and needs to be updated. Rather citing the current federal regulation, the underlying federal statute defining "well capitalized" can be cited instead. Changing this citation would not materially change the substance of this rule. In addition, state banks are already subject to these federal regulatory standards.

Daniel Frasier, Director of Corporate Activities and Financial Innovation, has determined that for the first five years the proposed amended rule is in effect, there will be no foreseeable increases or reductions in costs or other fiscal implications to state or local government as a result of enforcing or administering the rule as amended.

Director Frasier has further determined that for the first five years the proposed amended rule is in effect, the public benefit anticipated from enforcing the rules is ensuring that the Finance Code corporate activities requirements will be enforced for the benefit of banks and their constituents in a manner that is clear and not unnecessarily complex, and consistent with applicable federal regulations.

Director Frasier has also determined that for the first five years the proposed amended rule is in effect the economic costs to persons required to comply with the rule as proposed will be unchanged from the costs required under this rule as it currently exists.

In addition, Director Frasier has determined that for the first five years the proposed amended rule is in effect, the rule will not: create or eliminate a government program; require the creation of new department employee positions or the elimination of existing agency employee positions; require an increase or decrease in future legislative appropriations to the department; require an increase or decrease in fees paid to the department; create a new regulation; or increase or decrease the number of individuals subject to the rule's applicability.

Finally, Director Frasier has determined that there will be no adverse economic effect on small businesses, micro-businesses, or rural communities from the proposed amended rule and no difference in the cost of compliance for these entities.

To be considered, comments on the proposed amendment must be submitted to the department in writing no later than 5:00 p.m. on January 29, 2024. Comments should be addressed to General Counsel, Texas Department of Banking, Legal Division, 2601 North Lamar Boulevard, Suite 300, Austin, Texas 78705-4294. Comments may also be submitted by email to legal@dob.texas.gov.

§15.103.Expedited Filings.

(a) (No change.)

(b) An expedited filing consists of a letter application including, except to the extent waived by the banking commissioner, these items:

(1) a summary of the transaction;

(2) a current pro forma balance sheet and income statement for all parties to the transaction, with adjustments, reflecting the proposed transaction as of the most recent quarter ended immediately prior to the filing of the application, demonstrating that each resulting state bank is well capitalized as defined in Section 38, Federal Deposit Insurance Act, 12 USC §1831o [~~12 Code of Federal Regulations, §325.103~~];

(3) a completed Worksheet to Determine Eligibility form as prescribed by the commissioner;

(4) a completed Worksheet for Expedited Filings form as prescribed by the commissioner;

(5) an executed opinion of counsel conforming to the requirements of the section of this subchapter that would apply had the applicant not filed an expedited filing;

(6) copies of all other required regulatory notices or filings submitted concerning the transaction; and

(7) a copy of the public notice published in conformity with the section of this subchapter that would apply had the applicant not filed an expedited filing.

(d) The banking commissioner, in the exercise of discretion, may withdraw an application from expedited processing or may deny expedited filing treatment to an otherwise eligible applicant if the banking commissioner finds that the application involves one or more of these issues:

(1) the proposed transaction involves significant policy, supervisory, or legal issues;

(2) approval of the proposed transaction is contingent on additional statutory or regulatory approval by the banking commissioner or another state or federal regulatory agency;

(3) the proposed transaction contemplates a resulting entity that is not a financial institution;

(4) the proposed transaction involves a financial institution or other entity that is not domiciled in Texas;

(5) the proposed transaction would cause the assets of a resulting state bank to increase more than:

(A) 100% if it had total assets of one billion dollars or less prior to the transaction; or

(B) 35% if it had total assets of more than one billion dollars prior to the proposed transaction;

(6) the proposed transaction involves a state bank that has experienced, since the last commercial examination by a state or federal regulatory agency, asset growth, through acquisition or otherwise, greater than:

(A) 100% if it had total assets of one billion dollars or less at the last examination; or

(B) 35% if it had total assets of more than one billion dollars at the last examination;

(7) the proposed transaction involves a resulting state bank that would not be well capitalized as defined in Section 38, Federal Deposit Insurance Act, 12 USC §1831o [~~12 CFR §325.103~~];

(8) the proposed transaction involves an issue of regulatory concern as determined by the banking commissioner in the exercise of discretion; or

(9) the banking commissioner determines that a conversion examination is necessary for financial institutions converting into a state bank.

(e) - (f) (No change.)

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 15, 2023.

TRD-202304818

Robert K. Nichols, III

General Counsel

Texas Department of Banking

Earliest possible date of adoption: January 28, 2024

For further information, please call: (512) 475-1382

SUBCHAPTER G. CHARTER AMENDMENTS AND CERTAIN CHANGES IN OUTSTANDING STOCK

7 TAC §15.121, §15.122

The Finance Commission of Texas (the commission), on behalf of the Texas Department of Banking (the department), proposes to amend Subchapter G of Chapter 15 of Title 7 of the Texas Administrative Code, §15.121 and §15.122, concerning corporate activities by state banks. The amendments are proposed to conform the rules to changes in applicable Texas law and accounting standards.

Subchapter G of Chapter 15 provides general rules for charter amendments and outstanding stock changes for state banks subject to the Texas Finance Code (Finance Code). Section 15.121 governs acquisition and retention of shares of treasury stock by a state bank. Section 15.122 governs amendments to a state bank's certificate of formation to effect a reverse stock split.

Certain citations in §15.121 and §151.122 to Texas laws and Financial Accounting Standards Board standards are no longer correct and need to be updated. Changing these citations would not materially change the substance of these rules. In addition, state banks are already subject to these other requirements as currently in effect.

Director Frasier has also determined that for the first five years the proposed amended rules are in effect, the economic costs to persons required to comply with the rules as proposed will be unchanged from the costs required under these rules as they currently exist.

§15.121.Acquisition and Retention of Shares as Treasury Stock.

(a) - (c) (No change.)

(d) Compliance with securities law.

(1) An issuer's purchase of its own shares is a transaction subject to the antifraud provisions of federal securities law, see 15 United States Code, §78j, 17 Code of Federal Regulations, §240.10b-5, and Spector v. L Q Motor Inns, Inc., 517 F.2d 278 (5th Cir. 1975), cert. denied, 423 U.S. 1055 (1976). The transaction is also subject to the antifraud provisions of state securities law, see Texas Government Code, Title 12 [~~Civil Statutes, Article 581-33(B)~~]. Potential liability of the state bank to the selling shareholder can therefore arise if the state bank withholds or misrepresents material facts that the seller would have considered important in making the decision to sell.

(2) Approval of an application under this section by the commissioner does not constitute a determination that the bank has complied with applicable securities law.

(e) (No change.)

(f) Accounting for treasury stock. A state bank must account for the acquisition and retention of treasury stock in accordance with generally accepted accounting principles as prescribed by Financial Accounting Standard Board Accounting Standard Codification Topic 505-30, Treasury Stock [under either the cost method or the par value method (see Accounting Research Bulletin Number 43), although use of the cost method may avoid the reduction in capital and certified surplus that would be required under the par value method]. The method used for accounting for treasury stock must be clearly reflected in the bank's accounting records.

(g) (No change.)

§15.122.Amendment of Certificate to Effect a Reverse Stock Split.

(a) - (c) (No change.)

(d) Standards for approval.

(1) The banking commissioner will process the proposed reverse stock split in accordance with the Finance Code, §32.101(c). The banking commissioner will require that the reverse stock split be for valid business purposes of the bank itself, viewed as an entity distinct from its affiliates, and be accomplished through fair dealing with and a fair price to unaffiliated shareholders. The banking commissioner may impose conditions on approval, including a condition that an independent appraisal report be obtained regarding the value of the unaffiliated shareholders' shares, exclusive of any element of value arising from the accomplishment or expectation of the proposed transaction, and without minority discount. Share value determined by an independent and properly prepared appraisal report that is fully disclosed to bank shareholders or by the market price of publicly traded shares will be presumed to be a fair value unless extenuating circumstances to the contrary are specifically noted.

(2) In the event approval of the banking commissioner is obtained prior to approval by shareholders, the state bank must file a statement with the banking commissioner certifying that any future event or condition upon which the approval of the transaction was conditioned has been satisfied and the date that each such condition was satisfied. Upon receipt of such statement, the banking commissioner will file the approved amendment to the certificate of formation in accordance with the Finance Code, §32.101(c).

(3) An issuer's purchase of its own shares is a transaction subject to the antifraud provisions of federal securities law, see 15 United States Code, §78j, 17 Code of Federal Regulations (CFR), §240.10b-5, and Spector v. L Q Motor Inns, Inc., 517 F.2d 278 (5th Cir. 1975), cert. denied, 423 U.S. 1055 (1976). Such a transaction is also subject to the antifraud provisions of state securities law, see Texas Government Code, Title 12 [~~Civil Statutes, Article 581-33(B)~~]. Potential liability of the state bank to the selling shareholder can therefore arise if the state bank withholds or misrepresents material facts that the seller would have considered important in making the decision to sell. Consequently, a state bank must disclose to the shareholders in writing, prior to or simultaneously with the written notice of the shareholders meeting, all material information necessary to make an informed decision regarding the proposed reverse stock split. If the reverse stock split involves publicly traded shares and is subject to 15 CFR, §240.13e-3, the registration statement required by federal law is considered to satisfy this disclosure obligation. Approval of an application under this section by the banking commissioner does not constitute a determination that the bank has complied with applicable securities law.

(e) (No change.)

The agency certifies that legal counsel has reviewed the proposal and found it to be within the state agency's legal authority to adopt.

Filed with the Office of the Secretary of State on December 15, 2023.

TRD-202304823

Robert K. Nichols, III

General Counsel

Texas Department of Banking

Earliest possible date of adoption: January 28, 2024

For further information, please call: (512) 475-1382