BEFORE THE DEPARTMENT OF ADMINISTRATION
OF THE STATE OF MONTANA
In the matter of the adoption of New Rule I and the amendment of ARM 2.59.1001 pertaining to the merger application procedures
NOTICE OF PROPOSED ADOPTION AND AMENDMENT
NO PUBLIC HEARING CONTEMPLATED
TO: All Concerned Persons
1. On September 9, 2013, the Department of Administration proposes to adopt and amend the above-stated rules.
2. The Department of Administration will make reasonable accommodations for persons with disabilities who wish to participate in this rulemaking process or need an alternative accessible format of this notice. If you require an accommodation, contact the Department of Administration no later than 5:00 p.m. on August 29, 2013, to advise us of the nature of the accommodation that you need. Please contact Wayne Johnston, Division of Banking and Financial Institutions, P.O. Box 200546, Helena, Montana 59620-0546; telephone (406) 841-2918; TDD (406) 444-1421; facsimile (406) 841-2930; or e-mail to email@example.com.
3. The new rule proposed to be adopted provides as follows:
NEW RULE I MERGER APPLICATION PROCEDURES (1) An application to merge one or more banks located in Montana pursuant to 32-1-370, MCA, must be on the form in ARM 2.59.1001.
(2) An application to merge any two or more banks doing business in this state pursuant to 32-1-371, MCA, must be on the form in ARM 2.59.1001.
(3) The application to merge must be filed with the Montana Division of Banking and Financial Institutions (division).
(4) The applicant bank(s) shall publish a notice in a newspaper of general circulation in the community in which the main office of each party to the transaction is located. If there is no such newspaper in the community, then the notice shall be published in a newspaper of general circulation published nearest to the community. The notice must run three times. It must be published once a week on the same day for two consecutive weeks and the last publication must be the 25th day after the first publication. If the newspaper does not publish on the 25th day, the notice must be published on the newspaper's publication date that most closely precedes the 25th day.
(5) The text of the public notice must include the following information:
(a) that an application for merger has been made to the Montana Commissioner of Banking;
(b) the name and address of all the parties to the merger;
(c) the identity of the surviving institution;
(d) that the public may submit comments to the Commissioner, Montana Division of Banking and Financial Institutions, P.O. Box 200546, Helena, Montana 59620-0546;
(e) the closing date of the public comment period; and
(f) that the nonconfidential portions of the application are on file with the division and are available for public inspection during regular business hours.
(6) The comment period must be 30 days.
(7) The notice may be combined with any notice of an applicable state or federal regulator and published jointly.
(8) The applicant(s) shall provide the affidavit(s) of publication to the division after it is received.
AUTH: 32-1-218, MCA
IMP: 32-1-370, 32-1-371, MCA
STATEMENT OF REASONABLE NECESSITY: The Department of Administration (department) is proposing to adopt this new rule and to amend ARM 2.59.1001 for several reasons. First, the existing rule, ARM 2.59.1001, is outdated and requires that the banks provide information that is no longer considered necessary. Second, in the past, mergers were very limited in Montana and were allowed only between "affiliated" banks. Now, however, mergers are allowed in all instances, between in-state and out-of-state state-chartered banks and national banks. So it has become necessary for the department to adopt a process that will apply to all the types of mergers that currently take place. Third, another purpose in adopting and amending these rules is to coordinate the state rules with the federal rules promulgated by the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board (FRB), and the Office of the Comptroller of the Currency (OCC). The merger application must be approved by the state regulator (the department) and at least one federal regulator. At times, several other state regulators, in addition to the department, are involved in merger approvals. Since the banks must comply with all the regulations of all the regulators involved in the merger transaction, the department seeks to make its rules consistent with the federal rules in order to facilitate the merger, without compromising the needs of the state in obtaining the information it needs to understand and approve the merger. Fourth, the department has seen mergers of late in which it has no rules to guide the approval process. The department needs to have rules that will apply to these mergers because, at this point, there is nothing to guide the agency's discretion. Fifth, the department is proposing, in MAR Notice No. 2-60-485, to adopt rules for interim bank charters. The department, in this rulemaking, is proposing a process that will be similar to and consistent with that proposed rulemaking.
The format of this new proposed rule is consistent with the format of the new proposed rule on interim bank charters being proposed in MAR Notice No. 2-60-485. A copy of the proposed merger application must be sent to the department to review the application for completeness and begin the approval process.
Montana law has always required notice of a proposed merger be published in the newspaper published where the offices of the banks are located. The language of the rule clarifies that the notice need only be published in the community or communities where the main offices of the banks being merged are located, not where all the branches of the institutions are located. The timing of the notices is being changed from once a week on the same day for five consecutive weeks, and, when published in a daily newspaper, one additional publication on the 30th day from the date of the first publication to once a week on the same day for two consecutive weeks and the last publication must be the 25th day after the first publication. If the newspaper does not publish on the 25th day, the notice must be published on the newspaper's publication date that most closely precedes the 25th day in order to be consistent with the rules of the FDIC, the FRB, and the OCC.
The department has chosen to adopt notice language that is generic so as to allow the applicant banks involved in the merger to publish one notice and have it be acceptable to both the state and the federal regulators instead of having to publish two notices due to minor variations in wording between the required notices.
The length of the comment period is being specified in this notice. It was not clear under the old rule what the length of the comment period was.
The rule specifically states that any notice required under Montana law may be combined and published jointly with any notice required by an applicable state or federal regulator involved in the transaction. Both the FDIC and the FRB allow joint notices to be published. The department is seeking to make clear in this rulemaking that it too will allow joint publication of notices.
The affidavit of publication is required as part of the merger process because otherwise the applicant would have no way to prove the notice ran on the specific days required in the format required for notice. However, since it is an affidavit of publication, it cannot be made and sworn to until after the publication has been made. Thus, the affidavit is not available at the time the initial application is made. In (5), the department requires that the affidavit of publication be delivered to the department after it is received by the applicant.
4. The rule as proposed to be amended provides as follows, new matter underlined, deleted matter interlined:
2.59.1001 MERGER APPLICATION
PROCEDURE FOR APPROVAL TO MERGE AFFILIATED BANKS (1) Under authority granted by 32-1-218, MCA, the division adopts the following rules for the consolidation or merger into one bank of any two or more affiliated banks doing business in this state, if the resultant bank is to be a state bank.
(2) Applicant banks shall publish notice of intent to merge or consolidate. This notice shall be published in a newspaper of general circulation in the community or communities where the banking offices of all the merging banks are located, or if there is no such newspaper in the community, then in the newspaper of general circulation published nearest thereto. Publication shall be made at least once a week on the same day for five consecutive weeks, and, when published in a daily newspaper, one additional publication shall be made on the 30th day from the date of the first publication. The application shall be mailed or delivered to the division of banking and financial institutions not more than 30 days subsequent to the first publication of notice.
(3) (1) The application to merge one or more banks located in Montana or to merge two or more banks doing business in this state must be in the following form , including a request for authorization to operate the merged banks as branches, shall contain the following information:
BANK MERGER APPLICATION
Any individual or entity desiring confidential treatment of specific portions of the application shall specifically identify the information for which they request confidentiality, separately bind it, and label it "Confidential." The individual or entity shall follow the same procedure for a request for confidential treatment for the subsequent filing of supplemental information to the application. Inquiries concerning the preparation and filing of this or any other application with the department should be directed to the Montana Division of Banking and Financial Institutions, P.O. Box 200546, Helena, MT 59620-0546.
(a)1. State t The exact corporate name and address of each bank and holding company participating in the merger or consolidation, the name and address of every bank any of whose stock is owned by a participating bank holding company, the percentage of total voting stock which that holding represents, and the proposed names of the resultant bank and holding company.
(b)2. State t The name and address of, and the dates of publication in, the newspapers in which the required notice is published.
(c) The resolution or an authentic copy of the resolution, authorizing the merger adopted by a majority of the board of directors and ratified by the consent in writing of the shareholders of each bank owning at least two-thirds of its capital stock outstanding.
(d) A year-end financial statement for each participating bank and/or a consolidated statement for multi-bank holding company.
(e) A pro forma financial statement showing projected assets and liabilities, and first year earnings for the consolidated organization.
(f)3. For the resultant bank, a list of the names of the directors and principal executive officers, their ages, their titles, salaries and shares owned in the participating institutions and the resultant bank, including a brief resume of the educational background, banking experience, and other qualifications of each and explanation of the extent of common ownership, direct or indirect, or common management of the participating institution and the length of time such common ownership or management has existed.
(g) Specification and explanation of any new services offered as a result of the merger that individual participants presently do not offer, and existing services that will be discontinued as a result of the merger must be provided.
(h) If national banks are parties to the merger, the following information will be required for each national bank:
(i) Year-end call reports for three previous years plus the previous quarter.
(ii) Year-end financial statements.
(iii) Director's audit reports, if available.
(iv) Office of the comptroller of the currency administrative orders under which the bank might be operating.
4. The date on which the proposed merger is to occur.
5. Attach the following documents:
(a) the resolution or an authentic copy of the resolution, authorizing the merger adopted by a majority of the board of directors and ratified by the consent in writing of the shareholders of each bank owning at least two-thirds of its capital stock outstanding;
(b) a year-end financial statement for each participating bank and/or a consolidated statement for multi-bank holding company;
(c) a pro forma financial statement showing projected assets and liabilities, and first-year earnings for the consolidated organization; and
(d) the proposed articles of merger and plan of merger.
(4)(2) An application fee of $2,000 plus $200 for each bank involved in the merger shall must be paid to the division of banking and financial institutions at the time of application and thereafter shall may not be refunded in whole or in part.
(5)(3) If an application is incomplete in any respect, or if additional information is required, the applicants will be so notified by the division of banking and financial institutions shall notify the applicant and the applicant will be allowed up to 30 days in which to perfect the application or provide additional information. An extension of this 30-day period may be obtained from the division of banking and financial institutions by showing good cause why it should be so extended. The division may delay processing, including extending the comment period for good cause. Processing will be completed no earlier than the 15th day nor generally not later than the 45th day following the date of the last required publication.
(6)(4) The application shall must be in letter form addressed to the Commissioner of Banking and Financial Institutions, Department of Administration, P.O. Box 200546, Helena, MT 59620-0546.
32-1-203, 32-1-218, MCA
IMP: 32-1-370, 32-1-371, MCA
STATEMENT OF REASONABLE NECESSITY: The form of the application is being proposed because it is consistent with the form being proposed for an interim bank charter in MAR Notice No. 2-60-485. The department is seeking to make its forms consistent across various types of applications.
The second section of the existing rule is being moved to New Rule I in order to be consistent with other department forms. Section (3) is being redrafted to be consistent with current statutory language instead of old statutory language. The new language in (3) is designed to be consistent with other department forms, namely the application form for an interim bank. The language in the remainder of (3) is being redrafted to delete things that are no longer needed by the department as part of the merger process, such as the address of the newspaper that publishes the notice. The address of the newspaper that publishes the notice is not needed because it is contained in the affidavit of publication.
The resolution or an authentic copy of the resolution authorizing the merger adopted by a majority of the board of directors and ratified by the consent in writing of the shareholders of each bank owning at least two-thirds of its capital stock outstanding, the year-end financial statement for each participating bank and/or a consolidated statement for multi-bank holding company, a pro forma financial statement showing projected assets and liabilities and first-year earnings for the consolidated organization are being moved from the "general description of the proposed merger" section to the "attach the following documents" section of the rule because that is where they logically belong.
The ages and salaries of directors and principal officers used to be required under the old rule but are viewed as simply too intrusive and unnecessary.
The date on which the merger is expected to occur is not currently required under our rules. Unfortunately, that recently led to a situation where the department received an application for a merger that, according to a fellow regulator, needed to be processed immediately. The department did so. As part of its process, it caused a notice to be published in a newspaper in the community in which one merging bank was located. After the publication occurred, the department learned that, in fact, the merger was not scheduled to occur until after October 1, 2013. On October 1, 2013, HB 138 will become effective. HB 138 changes the merger provisions found in 32-1-370 and 32-1-371, MCA. The department analyzed the merger under the wrong statute because the proposed date of the merger was not provided as part of the application process. The changes in HB 138 will no longer require publication of notice by the department. So the department is proposing to add the merger date to the application process in order to avoid this situation in the future.
The applicant need not provide a listing of new services to be offered or old services to be discontinued. The department expects banks to offer all the usual banking services and does not need a specific listing of the types of services a bank expects to offer or discontinue.
The section on information necessary if one of the parties to the merger is a national bank is being deleted because the year-end call reports for three previous years plus the previous quarter, the year-end financial statements and director's audit reports, if available, are no longer needed. The administrative order that the bank is operating under is either public or it is not. If it is public, the department can download it, like any member of the public. If it is not public, the bank cannot give it to the department anyway so there is no point in asking.
The proposed articles of merger and plan of merger are necessary because the department legal counsel reviews them for legal sufficiency before they are finalized. The articles of merger and plan of merger must be filed with the Montana Secretary of State's Office after the merger is approved by the commissioner. The Secretary of State's Office will reject any articles of merger or plan of merger that do not contain the legally required elements. It is much easier to fix errors or omissions in the merger documents before they have been executed and tendered for filing, especially if a merger deadline is looming.
Division is being abbreviated in the old (4) since it has been used and defined previously in these rules. The language is being updated in this section by changing "shall" to "must" and "thereafter shall" to "may."
In old (5), division is being abbreviated since it has been used and defined previously in these rules. The language is being updated by removing "applicants will be so notified," which is archaic. The prohibition against processing an application for 15 days after the last publication of the notice is being removed. Presumably, this was designed to allow mailed comments to be received before the application was processed. But now that communications are instantaneous, in the case of e-mails, and relatively quick, in the case of mail, a 15-day waiting period is unnecessary. And the general 45-day period for processing an application after the last publication of the notice is no longer necessary. Depending on how "processing" is defined, this section of the rule may conflict with the merger date selected by the merging entities. The department encourages potential merger partners to let the regulator know as soon as possible about a merger. Merger documents can contain an effective date of the merger. That effective date can be up to 90 days after the documents are filed with the Secretary of State's Office. The department has seen applications in which the applicants gave the department four months' notice of a merger. If "processing" is defined as filing the articles of merger with the Secretary of State's Office, the provision in this rule could interfere with the merger date selected by the merger parties. The department wants to continue to encourage merger parties to let their regulator know as soon as possible about any potential merger and does not want a built-in disincentive to providing as much advance notice of a potential merger as possible.
Section 32-1-203, MCA, is being deleted from the authority section since it does not apply to this rule. The State Banking Board makes rules applicable to new bank charters, but they do not apply here. However, 32-1-218, MCA, does apply here since it allows the department to make rules.
Section 32-1-371, MCA, is being added to the implemented section since there are two merger statutes being implemented by the rulemaking, 32-1-370 and 32-1-371, MCA.
5. Concerned persons may present their data, views, or arguments concerning the proposed action to Kelly O'Sullivan, Legal Counsel, Division of Banking and Financial Institutions, P.O. Box 200546, Helena, Montana 59620-0546; faxed to the office at (406) 841-2930; or e-mailed to firstname.lastname@example.org; and must be received no later than 5:00 p.m., September 6, 2013.
6. If persons who are directly affected by the proposed action wish to express their data, views, or arguments orally or in writing at a public hearing, they must make written request for a hearing and submit this request along with any written comments to the person listed in 5 above no later than 5:00 p.m., September 6, 2013.
7. If the Division of Banking and Financial Institutions receives requests for a public hearing on the proposed action from either 10% or 25, whichever is less, of the persons directly affected by the proposed action; from the appropriate administrative rule review committee of the Legislature; from a governmental subdivision or agency; or from an association having not less than 25 members who will be directly affected, a hearing will be held at a later date. Notice of the hearing will be published in the Montana Administrative Register. Ten percent of those directly affected has been determined to be six persons based on the 57 existing state-chartered banks.
8. The Division of Banking and Financial Institutions maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this division. Persons who wish to have their name added to the mailing list shall make a written request that includes the name and mailing address and e-mail address of the person to receive notices and specifies that the person wishes to receive notices regarding division rulemaking actions. Notices will be sent by e-mail unless a mailing preference is noted in the request. Such written requests may be mailed or delivered to Wayne Johnston, Division of Banking and Financial Institutions, 301 S. Park, Ste. 316, P.O. Box 200546, Helena, Montana 59620-0546; faxed to the office at (406) 841-2930; e-mailed to email@example.com; or may be made by completing a request form at any rules hearing held by the department.
9. An electronic copy of this proposal notice is available through the department's web site at http://doa.mt.gov/administrativerules.mcpx. The department strives to make the electronic copy of the notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that if a discrepancy exists between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered. In addition, although the department works to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.
10. The bill sponsor contact requirements of 2-4-302, MCA, do not apply.
11. The department has determined that this new rule and the proposed rule amendments will not significantly and directly affect small businesses.
By: /s/ Sheila Hogan By: /s/ Michael P. Manion
Sheila Hogan, Director Michael P. Manion, Rule Reviewer
Department of Administration Department of Administration
Certified to the Secretary of State July 29, 2013.