A. After obtaining approval of the commissioner [director of the financial institutions division of the regulation and licensing department] and the approval of the stockholders owning two-thirds of the issued and outstanding shares of stock of the bank entitled to vote, a bank may issue and sell its capital debentures or notes. Capital debentures or notes may be converted into shares of common or preferred stock in accordance with the provisions of the debentures or notes and under any terms or conditions prescribed or approved by the commissioner [director]. The principal amount of any capital debentures or notes outstanding at any time shall not exceed an amount equal to the sum of one hundred percent of the banks' [bank's] unimpaired paid-in capital stock and fifty percent of its unimpaired surplus fund.

B. Capital debentures or notes are an unsecured indebtedness of the bank and are subordinate to the claims of depositors and all other creditors of the bank, regardless of whether the claims of the depositors or other creditors arose before or after the issuance of the capital debentures or notes. In the event of liquidation of the bank, all depositors and other creditors of the bank are entitled to be paid in full before any payment is made of principal or interest on the outstanding capital debentures or notes. After payment to depositors and creditors, capital debentures or notes shall be paid pro rata regardless of the date of their issuance. No payment of the principal of outstanding capital debentures or notes shall be made unless, after the payment, the aggregate of the capital, surplus, undivided profits and capital debentures or notes then outstanding is equal to the aggregate of the foregoing items immediately after the original issue of the capital debentures or notes. Convertible debentures or notes may be issued without offering them to the existing stockholders of the bank if it is so provided in the articles of incorporation of the bank on its organization, or by later amendment to these articles.

C. The amounts of outstanding capital debentures or notes legally issued by any bank shall be treated as capital for the purpose of computing the loan limits prescribed in Section 58-1-24 NMSA 1978 and for determining the amount of money a state bank may borrow for temporary purposes as provided in Section 58-1-28 NMSA 1978, and for computing the amount that may be invested in banking premises under the provisions of Section 58-1-26 NMSA 1978.

History: 1953 Comp., § 48-22-28.1, enacted by Laws 1965, ch. 23, § 1; 1969, ch. 253, § 1.

Bracketed material. — The bracketed material was inserted by the compiler and is not part of the law.

Cross references. — For director of financial institutions, see 9-16-4 NMSA 1978.

Purpose of section is to provide restrictions on the accumulation of debt capital by a banking institution. 1979 Op. Att'y Gen. No. 79-06.

Limited right to issue preferred stock. — A bank chartered under the provisions of the New Mexico Banking Act may only issue preferred stock upon conversion of capital notes or debentures pursuant to this section. 1979 Op. Att'y Gen. No. 79-06.

Subsection A authorizes a state-chartered bank to issue preferred stock only in the circumstance of a conversion of a note or capital debenture of the bank, and then only under the terms and conditions prescribed by the director of the financial institutions division. It does not create a general grant of authority for state-chartered banks to issue preferred stock as a means of raising equity capital for the institution. 1979 Op. Att'y Gen. No. 79-06.

Capital debentures, notes not "capital stock". — Even though Subsection C of this section provides that capital debentures or notes may be treated as "capital" for the purposes of computing the loan limit as prescribed by Section 58-1-24 NMSA 1978, these debentures or notes are actually an indebtedness of the banks unless and until they are converted into shares of common or preferred stock. Since they represent indebtedness they are not capital stock within the meaning of Section 6-10-36 NMSA 1978. 1966 Op. Att'y Gen. No. 66-39 (rendered under prior law).

Am. Jur. 2d, A.L.R. and C.J.S. references. — 10 Am. Jur. 2d Banks § 321.

Statutory added liability of holders of bank stock or other corporate stock the issue of which was ultra vires, invalid, or irregular, 86 A.L.R. 816.

9 C.J.S. Banks and Banking § 240.