Opinion
No. 75-369
Decided June 17, 1976. Rehearing denied July 15, 1976. Certiorari granted October 12, 1976.
Petitioners sought review of Banking Board order granting applicants a charter to operate a commercial bank.
Order Set Aside
1. BANKS AND BANKING — Charter Application — All Stock Subscribed — Bank Holding Company — Not Approved — Federal Reserve Board — Should Have Been Denied. Where a charter application to operate a commercial bank was filed with a stock subscription agreement showing that a bank holding company had subscribed for all authorized stock of the proposed bank, and where the record shows no request made to, or action taken by, the Federal Reserve Board regarding the acquisition, the application should have been denied because (1) either the subscription agreement was an unconditional obligation, and, therefore in direct violation of the Bank Holding Company Act, or (2) if only a conditional subscription subject to prior approval of the Federal Reserve Board, the statutory requirement that stock be "fully subscribed" before applying for a charter had not been complied with.
2. Charter Application — With Conditional Subscriptions — Not Fully Subscribed — Statutory Requirement. If a charter to operate a commercial bank includes a stock subscription agreement with merely conditional subscriptions, the stock is not "fully subscribed" as required by statute, and thus an order of the Banking Board granting the charter must be set aside as being in excess of statutory authority.
3. Charter Application — All Stock Subscribed — Bank Holding Company — No Approval — Federal Reserve Board — Finding of Lawful Manner — Not Supported. If a charter application to operate a commercial bank includes a stock subscription agreement showing that a bank holding company has unconditionally subscribed for all authorized stock of the proposed bank, and the record shows no request made to, or action taken by, the Federal Reserve Board regarding the acquisition, then the action taken by applicants is in violation of the Bank Holding Company Act; consequently, the Banking Board's finding that applicants proceeded in a lawful manner is not supported by the evidence and, therefore, must be set aside.
Review of Order from the Banking Board of the State of Colorado
Simon, Eason, Hoyt Malone, P.C., Richard L. Eason, for petitioner Columbine State Bank.
Rothgerber, Appel Powers, A. Frank Vick, Jr., for petitioners, Larry A. Mizel, Harold Guzofsky, Steven P. Levin, John Andrew Love, and William B. Kemper.
J. D. MacFarlane, Attorney General, Jean E. Dubofsky, Deputy Attorney General, Edward G. Donovan, Assistant Attorney General John R. Rodman, Assistant Attorney General, for respondents Banking Board and State Bank Commissioner.
Davis, Graham Stubbs, Arthur E. Otten, Jr., for respondents Charles A. Schley, Harold Kountze, Jr., Kenneth H. Nordling, Will F. Nicholson, Jr., and Verner Eliason.
Protestants, Columbine State Bank and the organizers of Southeast State Bank, have petitioned for review of an order to the Banking Board directing the State Bank Commissioner to grant to the applicants, Schley, Kountze, Nordling, Nicholson, and Eliason, a charter to operate a commercial state bank under the name of "Colorado Bank-Tech Center" (TCB) in Greenwood Village, Colorado. We set aside the order.
This charter application was filed essentially by Colorado National Bankshares, Inc. (CNB), a Colorado multi-bank holding company registered under the Bank Holding Company Act. The five individual applicants were the incorporators and organizers of TCB, and all were officers of CNB or of one of its subsidiaries. The Bank Holding Company Act, 12 U.S.C. § 1842(a), provides:
"It shall be unlawful, except with the prior approval of the Board [of Governors of the Federal Reserve System] . . . (2) for any action to be taken that causes a bank to become a subsidiary of a bank holding company; (3) for any bank holding company to acquire direct or indirect ownership or control of any voting shares of any bank, if after such acquisition, such company will directly or indirectly own or control more than five percentum of the voting shares of such bank . . . ." (emphasis supplied)
Therefore, it was stated in the application that:
"As required by the Bank Holding Company Act of 1956, as amended, Colorado National Bankshares, Inc. will request the prior approval of the Federal Reserve Board for it to acquire all of the stock of said Bank, except those shares necessary for directors' qualifying shares."
However, included in the application was a stock subscription agreement, executed by the five applicants and by CNB, showing that, except for directors' qualifying shares, CNB had already subscribed for all of the authorized stock of TCB. Each subscriber stated:
"I further agree to accept the number of shares of capital stock set forth opposite my signature and agree to pay $135.00 per share in cash upon demand prior to or commensurate with the granting of a charter to the proposed bank."
CNB paid in its 94% share of the organization expenses as required by § 11-3-108, C.R.S. 1973. There is nothing in the record to show any request made to or prior action taken by the Federal Reserve Board regarding this acquisition.
The Banking Board found that all subscribers "unconditionally subscribed for all of the stock" and, therefore, "the stock was fully subscribed at the time application for charter was made." Further, it approved the determination by the Bank Commissioner that the applicants had complied with all statutory requirements, including the finding that they had proceeded in a lawful manner.
[1] The protestants contend that the application should have been denied because (1) either the subscription agreement is an unconditional obligation and, therefore, in direct violation of the Bank Holding Company Act, or (2) if only a conditional subscription, subject to prior approval of the Federal Reserve Board, the requirements that the stock be "fully subscribed" before applying for a charter, § 11-3-109(1), C.R.S. 1973, have not been complied with. They assert that in either event the applicants have not proceeded in a lawful manner and that, therefore, pursuant to § 11-3-110(1)(a), C.R.S. 1973, the application should have been returned to the applicants without any hearing or further action thereon.
[2,3] We agree with the protestants. If the subscriptions are conditional, the stock has not been "fully subscribed" as required by § 11-3-109(1), C.R.S. 1973, and the order of the Banking Board must be reversed as being "in excess of statutory authority." Section 11-2-105(2), C.R.S. 1973. On the other hand, if the subscriptions are unconditional, as determined by the Banking Board, then the action by CNB and the applicants as its representatives is in violation of the Bank Holding Company Act, and, consequently, the finding that the applicants proceeded in a lawful manner is not supported by the evidence, and the order must be reversed for that reason. Sections 11-3-110(1)(a) and 11-2-105(2), C.R.S. 1973.
Inasmuch as the above is dispositive of this appeal, it is not necessary to consider the other alleged errors asserted by the protestants.
The order is set aside and the cause is remanded to the Banking Board with directions to remand the application to the State Bank Commissioner for return of the documents to the applicants in accordance with § 11-3-109(2), C.R.S. 1973.
JUDGE ENOCH and JUDGE SMITH concur.