Utah Administrative Code

The Utah Administrative Code is the body of all effective administrative rules as compiled and organized by the Division of Administrative Rules (Subsection 63G-3-102(5); see also Sections 63G-3-701 and 702).

NOTE: For a list of rules that have been made effective since August 1, 2018, please see the codification segue page.

NOTE TO RULEFILING AGENCIES: Use the RTF version for submitting rule changes.


R333. Financial Institutions, Banks.

Rule R333-8. Authority for Banks to Issue Subordinated Capital Notes or Debentures.

As in effect on August 1, 2018

Table of Contents

R333-8-1. Authority, Scope, and Purpose.

(1) This rule is issued pursuant to Subsection 7-1-301(8) and Section 7-3-28.

(2) This rule applies to all commercial banks chartered by the State of Utah which issue convertible or non-convertible subordinated capital notes or debentures.

(3) The purpose of this rule is to establish the criteria and procedures for issuance of subordinated capital notes or debentures and limitations on the total amount of such instruments which may be outstanding in order to protect the bank's depositors and shareholders.

R333-8-2. Definitions.

(1) "Capital Stock" means the total of:

(a) the par value of all shares of the bank having a par value that have been issued; plus

(b) the amount of the consideration received by the bank for all shares of the bank without par value that have been issued, except that part of the consideration which has been allocated to capital surplus in a manner permitted by law; plus

(c) the amounts not included in Subsections (a) and (b) as have been transferred to stated capital of the bank, whether upon the issue of shares as a share dividend or otherwise; minus

(d) all reductions from such sum as have been effected in a manner permitted by law.

(2) "Mandatory Convertible Securities" means any capital securities which require that at some future date the issuer must exchange common or perpetual preferred stock for the outstanding security.

(3) "Surplus" means the total of:

(a) the amount paid to the bank in excess of the par value of its capital stock, or, in the case of stock without par value, the amount designated as surplus of the total amount received for its capital stock,

(b) amounts received as capital contributions, and

(c) amounts transferred to the capital surplus account from undivided profits.

R333-8-3. Authority to Issue Capital Notes and Debentures.

(1) Any bank may, with the authorization by resolution of its board of directors, make application to the commissioner for permission to issue mandatory convertible, non-convertible, or optional convertible capital notes or debentures, subordinated to the claims of depositors and other creditors.

(2) The commissioner may grant approval for the issuance of mandatory convertible subordinated capital notes or debentures in such amounts and under such terms and conditions as he shall deem appropriate, provided that:

(a) All relevant provisions of Rule R331-5 have been complied with;

(b) The terms of any issue of mandatory convertible securities must require that all securities be converted to common stock or perpetual preferred stock within ten years of the date of issuance;

(c) The aggregate principal amount of all mandatory convertible securities outstanding at any time, together with the aggregate principal amount of all non-convertible or optional convertible securities outstanding shall not exceed 150% of the sum of the bank's capital stock and surplus accounts;

(d) Mandatory convertible securities may be redeemed prior to maturity only with the proceeds from the sale of common stock or perpetual preferred stock of the bank or bank holding company;

(e) The holder of the security cannot accelerate payment of principal except in the event of bankruptcy, insolvency, or reorganization;

(f) The security must be subordinate in right of payment to all senior indebtedness of the issuer. If the proceeds from the sale of such securities are to be loaned to an affiliate, that loan must be subordinated to the same extent as the original issue;

(g) The bank has a record of sound performance and management; and

(h) The securities shall not be used as collateral for loans or extensions of credit made by the bank.

(3) The commissioner may grant approval for the issuance of non-convertible or optional convertible subordinated capital notes or debentures in such amounts and under such terms and conditions as he shall deem appropriate, provided that:

(a) All relevant provisions and conditions of Department Rule R331-5 have been complied with;

(b) Each issue shall have a weighted average maturity at issuance of not less than seven years;

(c) The aggregate principal amount of all non-convertible and optional convertible securities outstanding at any time, together with the aggregate principal amount of all mandatory convertible securities outstanding shall not exceed 150% of the sum of the bank's capital stock and surplus accounts;

(d) The holder of the security cannot accelerate payment of principal except in the event of bankruptcy, insolvency, or reorganization;

(e) The security must be subordinate in right of payment to all senior indebtedness of the issuer. If the proceeds from the sale of such securities are to be loaned to an affiliate, that loan must be subordinated to the same extent as the original issue;

(f) The bank has a record of sound performance and management and can demonstrate that the bank will be able to generate earnings and cash flows adequate to service the subordinated notes or debentures; and

(g) The subordinated capital notes or debentures shall not be used as collateral for loans or extensions of credit made by the bank.

R333-8-4. Disclosure.

All subordinated capital notes or debentures issued by a bank, whether convertible or not, shall have the following provisions made in the body of the note or debenture and these provisions shall be disclosed in either a bold face type or in a size of type which is larger than the type face used in the other provisions carried in the body of the note or debenture.

(1) This obligation is NOT insured by the Federal Deposit Insurance Corporation.

(2) This obligation is subordinated to the claims of all depositors and other creditors.

(3) Subordinated capital notes or debentures shall not be used as collateral for loans made by the bank.

(4) The disclosure required under subsections (1) and (2) of this section shall be prominently displayed in all advertising of capital notes or debentures.

R333-8-5. Use as Capital.

The outstanding principal amount of all mandatory convertible securities and all subordinated capital notes or debentures not maturing within one year shall be added to the capital of the issuing bank for the purpose of determining the amount of "total capital" under the provisions of Section 7-3-19.

R333-8-6. Exceptions to the Limits on Amounts of Subordinated Capital Notes or Debentures Which May Be Issued.

(1) Notwithstanding the limitation imposed by this rule, subordinated capital notes or debentures assumed under a supervisory action or plan or reorganization pursuant to Sections 7-2-1, 7-2-12 or 7-2-18 may, at the discretion of the commissioner, exceed the maximum limitation imposed by this rule.

(2) Notwithstanding the limitation imposed by this rule, subordinated capital notes or debentures issued to the Federal Deposit Insurance Corporation pursuant to Section 13(c) of the Federal Deposit Insurance Act, 12 U.S.C. 1823(c), may, at the discretion of the Commissioner, exceed the maximum limitation imposed by this rule.

KEY

banks and banking

Date of Enactment or Last Substantive Amendment

1995

Notice of Continuation

September 15, 2017

Authorizing, Implemented, or Interpreted Law

7-1-301(8)(e); 7-3-28


Additional Information

Contact

For questions regarding the content or application of rules under Title R333, please contact the promulgating agency (Financial Institutions, Banks). A list of agencies with links to their homepages is available at http://www.utah.gov/government/agencylist.html or from http://www.rules.utah.gov/contact/agencycontacts.htm.