Trust Companies

Statutes - Texas Finance Code

TITLE 3. FINANCIAL INSTITUTIONS AND BUSINESSES

SUBTITLE F. TRUST COMPANIES

CHAPTER 181. GENERAL PROVISIONS (TITLE 3; SUBTITLE F)

Subchapter A. General Provisions

§181.001. Short Title.

This subtitle may be cited as the Texas Trust Company Act.

§181.002. Definitions.

(a) In this subtitle:

(1) "Account" means the client relationship established with a trust institution involving the transfer of funds or property to the trust institution, including a relationship in which the trust institution acts as trustee, executor, administrator, guardian, custodian, conservator, receiver, registrar, or agent.

(2) "Affiliate" means a company that directly or indirectly controls, is controlled by, or is under common control with a state trust company or other company.

(3) [Repealed]1

(4) "Banking commissioner" means the banking commissioner of Texas or a person designated by the banking commissioner and acting under the banking commissioner´s direction and authority.

(5) "Board" means the board of directors, managers, or managing participants of, or a person or group of persons acting in a comparable capacity for, a state trust company or other entity.

(6) [Repealed]2

(7) "Capital" means:

(A) the sum of:

(i) the par value of all shares or participation shares of a state trust company having a par value that have been issued;

(ii) the consideration set by the board for all shares or participation shares of the state trust company without par value that have been issued, except the part of that consideration that:

(a) has been actually received;

(b) is less than all of that consideration; and

(c) the board, by resolution adopted not later than the 60th day after the date of issuance of those shares, has allocated to surplus with the prior approval of the banking commissioner; and

(iii) an amount not included in Subparagraphs (i) and (ii) that has been transferred to capital of the state trust company, on the payment of a share dividend or on adoption by the board of a resolution directing that all or part of surplus be transferred to capital, minus each reduction made as permitted by law; less

(B) all amounts otherwise included in Paragraphs (A)(i) and (ii) that are attributable to the issuance of securities by the state trust company and that the banking commissioner determines, after notice and an opportunity for hearing, should be classified as debt rather than equity securities.

(8) "Certified surplus" means the part of surplus designated by a vote of the board of a state trust company under Section 182.105 and recorded in the board minutes as certified.

(9) "Charter" means a charter issued under this subtitle to engage in a trust business.

(10) "Client" means a person to whom a trust institution owes a duty or obligation under a trust or other account administered by the trust institution, regardless of whether the trust institution owes a fiduciary duty to the person. The term includes a beneficiary of a trust for whom the trust institution acts as trustee and a person for whom the trust institution acts as agent, custodian, or bailee.

(11) "Company" means a corporation, a partnership, an association, a business trust, another trust, or a similar organization, including a trust institution.

(12) "Conservator" means the banking commissioner or an agent of the banking commissioner exercising the powers and duties provided by Subchapter B, Chapter 185.

(13) "Control" means:

(A) the ownership of or ability or power to vote, directly, acting through one or more other persons, or otherwise indirectly, 25 percent or more of the outstanding shares of a class of voting securities of a state trust company or other company;

(B) the ability to control the election of a majority of the board of the state trust company or other company;

(C) the power to exercise, directly or indirectly, a controlling influence over the management or policies of the state trust company or other company as determined by the banking commissioner after notice and an opportunity for hearing; or

(D) the conditioning of the transfer of 25 percent or more of the outstanding shares or participation shares of a class of voting securities of the state trust company or other company on the transfer of 25 percent or more of the outstanding shares of a class of voting securities of another state trust company or other company.

(14) "Department" means the Texas Department of Banking.

(15) "Depository institution" means an entity with the power to accept deposits under applicable law.

(15-a) "Equity capital" means the amount by which the total assets of a state trust company exceed the total liabilities of the trust company.

(16) [Repealed]3

(17) "Equity security" means:

(A) stock or a similar security, any security convertible, with or without consideration, into such a security, a warrant or right to subscribe to or purchase such a security, or a security carrying such a warrant or right;

(B) a certificate of interest or participation in a profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share or participation share, investment contract, voting-trust certificate, or partnership interest; and

(C) a certificate of interest or participation in, temporary or interim certificate for, or receipt for a security described by this subdivision that evidences an existing or contingent equity ownership interest.

(18) "Fiduciary record" means a matter written, transcribed, recorded, received, or otherwise in the possession of a trust institution that is necessary to preserve information concerning an act or event relevant to an account of a trust institution.

(19) "Finance commission" means the Finance Commission of Texas.

(20) [Repealed]4

(21) "Full liability participant" means a participant that agrees under the terms of a participation agreement to be liable under a judgment, decree, or order of court for the entire amount of all debts, obligations, or liabilities of a limited trust association.

(22) "Hazardous condition" means:

(A) a refusal by a trust company or an affiliate of a trust company to permit an examination of its books, papers, accounts, records, or affairs by the banking commissioner as provided by Section 181.104;

(B) a violation by a trust company of a condition of its chartering or an agreement entered into between the trust company and the banking commissioner or the department; or

(C) a circumstance or condition in which an unreasonable risk of loss is threatened to clients or creditors of a trust company, excluding risk of loss to a client that arises as a result of the client´s decisions or actions, but including a circumstance or condition in which a trust company:

(i) is unable or lacks the means to meet its current obligations as they come due in the regular and ordinary course of business, even if the book or fair market value of its assets exceeds its liabilities;

(ii) has equity capital less than the amount of restricted capital the trust company is required to maintain under Section 182.008, or has equity capital the adequacy of which is threatened, as determined under regulatory accounting principles;

(iii) has concentrated an excessive or unreasonable portion of its assets in a particular type or character of investment;

(iv) violates or refuses to comply with this subtitle, another statute or regulation applicable to trust companies, or a final and enforceable order of the banking commissioner;

(v) is in a condition that renders the continuation of a particular business practice hazardous to its clients and creditors; or

(vi) conducts business in an unsafe or unsound manner, including conducting business with:

(a) inexperienced or inattentive management;

(b) weak or potentially dangerous operating practices;

(d) administration of assets that is notably deficient in relation to the volume and character of or responsibility for asset holdings;

(e) unsound administrative practices;

(f) frequent and uncorrected material occurrences of violations of law, including rules, or terms of the governing instruments; or

(g) a notable degree of conflicts of interest and engaging in self-dealing.

(23) "Home office" means a location registered with the banking commissioner as a state trust company´s home office at which:

(A) the trust company does business;

(B) the trust company keeps its corporate books and records; and

(24) "Insider" means:

(A) each director, manager, managing participant, officer, and principal shareholder or participant of a state trust company;

(B) each affiliate of the state trust company and each director, officer, and employee of the affiliate;

(C) any person who participates or has authority to participate, other than in the capacity of a director, in major policy-making functions of the state trust company, whether or not the person has an official title or the officer is serving without salary or compensation; or

(D) each company controlled by a person described by Paragraph (A), (B), or (C).

(25) "Insolvent" means a circumstance or condition in which a state trust company:

(A) is unable or lacks the means to meet its current obligations as they come due in the regular and ordinary course of business, even if the value of its assets exceeds its liabilities;

(B) has equity capital that is 50 percent or less of the amount restricted capital the trust company is required to maintain;

(C) fails to maintain deposit insurance for its deposits with the Federal Deposit Insurance Corporation or its successor, or fails to maintain adequate security for its deposits as provided by Section 184.301(c);

(D) sells or attempts to sell substantially all of its assets or merges or attempts to merge substantially all of its assets or business with another entity other than as provided by Chapter 182; or

(E) attempts to dissolve or liquidate other than as provided by Chapter 186.

(26) "Investment security" means a marketable obligation evidencing indebtedness of a person in the form of a bond, note, debenture, or investment security.

(27) "Limited trust association" means a state trust company organized under this subtitle as a limited liability company, authorized to issue participation shares, and controlled by its participants.

(28) "Loans and extensions of credit" means direct or indirect advances of money by a state trust company to a person that are conditioned on the obligation of the person to repay the funds or that are repayable from specific property pledged by or on behalf of the person.

(29) "Manager" means a person elected to the board of a limited trust association.

(30) "Managing participant" means a participant in a limited trust association in which management has been retained by the participants.

(31) "Mutual funds" means equity securities of an investment company registered under the Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.) and the Securities Act of 1933 (15 U.S.C. Section 77a et seq.). The term does not include money market funds.

(32) "Officer" means the presiding officer of the board, the principal executive officer, or another officer appointed by the board of a state trust company or other company, or a person or group of persons acting in a comparable capacity for the state trust company or other company.

(33) "Operating subsidiary" means a company for which a state trust company has the ownership, ability, or power to vote, directly, acting through one or more other persons, or otherwise indirectly, more than 50 percent of the outstanding shares of each class of voting securities or its equivalent of the company.

(34) "Participant" means an owner of a participation share in a limited trust association.

(35) "Participant-transferee" means a transferee of a participation share who has not received the unanimous consent of all participants to be a participant, or who becomes a participant-transferee under Subchapter C, Chapter 183.

(36) "Participation agreement" means the instrument stating the agreement among the participants of a limited trust association relating to the rights and duties of the participants and participant-transferees, including allocations of income, loss, deduction, credit, distributions, liquidation rights, redemption rights, liabilities of participants, priority rights of participant-transferees to transfer participation shares, rights of participants to purchase participation shares of participant-transferees, the procedures for elections and voting by participants, and any other matter not prohibited by or inconsistent with this subtitle.

(37) "Participation shares" means the units into which the proprietary interests of a limited trust association are divided or subdivided by means of classes, series, relative rights, or preferences.

(38) "Principal shareholder" means a person who owns or has the ability or power to vote, directly, acting through one or more other persons, or otherwise indirectly, 10 percent or more of the outstanding shares or participation shares of any class of voting securities of a state trust company or other company.

(39) "Restricted capital" means the sum of capital and certified surplus.

(40) "Regulatory accounting principles" means generally accepted accounting principles as modified by rules adopted under:

(A) this subtitle; or

(B) an applicable federal statute or regulation.

(41) "Secondary capital" means the amount by which the assets of a state trust company exceed restricted capital, required by Section 182.008, and liabilities.

(42) "Shareholder" means an owner of a share in a state trust company.

(43) "Shares" means the units into which the proprietary interests of a state trust company are divided or subdivided by means of classes, series, relative rights, or preferences.

(44) "State bank" means a banking association or limited banking association organized or reorganized under Subtitle A, including an association organized under the laws of this state before September 1, 1997, with the express power to receive and accept deposits and possessing other rights and powers granted by that subtitle expressly or by implication. The term does not include a savings association, savings bank, or credit union.

(45) "State trust company" or "trust company" means a trust association or limited trust association organized or reorganized under this subtitle, including an association organized under the laws of this state before September 1, 1997. If the context or circumstances require, the term includes a trust company organized under the laws of another state that lawfully maintains a trust office in this state in accordance with Chapter 187.

(46) "Subsidiary" means a state trust company or other company that is controlled by another person. The term includes a subsidiary of a subsidiary.

(47) "Supervisor" means the banking commissioner or an agent of the banking commissioner exercising the powers and duties specified in Subchapter B, Chapter 185.

(47-a) "Surplus" means the amount by which the assets of a state trust company exceed the company's liabilities, capital, and undivided profits.

(47-b) "Third-party service provider" means a person who performs activities relating to the trust business on behalf of a trust institution for the trust institution's customers or on behalf of another person directly engaged in providing financial services for the person's customers. The term:

(A) includes a person who:

(i) provides data processing services;

(ii) performs activities in support of the provision of financial services, including lending, transferring funds, fiduciary activities, trading activities, and deposit taking activities; or

(iii) for the purpose of furnishing to third parties reports indicating a person's creditworthiness, credit standing, or credit capacity, regularly engages in the practice of assembling or evaluating, and maintaining, public record information and credit account information from persons who furnish that information regularly and in the ordinary course of business; or

(iv) provides Internet-related services, including web services, processing electronic bill payments, developing and maintaining mobile applications, system and software development and maintenance, and security monitoring; and

(B) does not include a provider of an interactive computer service or a general audience Internet or communications platform, except to the extent that the service or platform is specially designed or adapted for the trust business and activities relating to the trust business.

(48) "Trust association" means a trust company organized under this subtitle as a corporation, authorized to issue shares of stock, and controlled by its shareholders.

(49) "Trust business" means the business of a company holding itself out to the public as a fiduciary for hire or compensation to hold or administer accounts. The term includes:

(A) the business of a trustee or custodian of an individual retirement account described by Section 408(a), Internal Revenue Code of 1986; and

(B) the business of an administrator or servicer of individual retirement accounts described by Section 408(a), Internal Revenue Code of 1986, who makes the administrator's or servicer's services available to the public for hire or compensation.

(50) "Trust deposits" means client funds held by a trust institution and authorized to be deposited with itself as a permanent investment or pending investment, distribution, or payment of debts on behalf of the client.

(51) "Trust institution" means a bank, credit union, foreign bank, savings association, savings bank, or trust company that is authorized by its charter to conduct a trust business.

(52) "Unauthorized trust activity" means an act or practice within this state by a company without a charter, license, permit, registration, or other authority issued or granted by the banking commissioner or other appropriate regulatory authority for which such a charter, license, permit, registration, or other authority is required to conduct trust business.

(53) "Undivided profits" means the part of equity capital of a state trust company equal to the balance of its net profits, income, gains, and losses since the date of its formation minus subsequent distributions to shareholders or participants and transfers to surplus or capital under share dividends or appropriate board resolutions. The term includes amounts allocated to undivided profits as a result of a merger.

(54) "Voting security" means a share, participation share, or other evidence of proprietary interest in a state trust company or other company that has as an attribute the right to vote or participate in the election of the board of the trust company or other company, regardless of whether the right is limited to the election of fewer than all of the board members. The term includes a security that is convertible or exchangeable into a voting security and a nonvoting participation share of a managing participant.

(b) The definitions provided by this section shall be liberally construed to accomplish the purposes of this subtitle.

§181.003. Trust Company Rules.5

(a) The finance commission may adopt rules to accomplish the purposes of this subtitle, including rules necessary or reasonable to:

(1) implement and clarify this subtitle;

(2) preserve or protect the safety and soundness of state trust companies;

(3) grant the same rights and privileges to state trust companies with respect to the exercise of fiduciary powers and the conducting [sic] of financial activities or activities incidental or complementary to financial activities that are or may be granted to a trust institution that maintains its principal office or a branch or trust office in this state;

(4) provide for recovery of the cost of maintenance and operation of the department and the cost of enforcing this subtitle through the imposition and collection of ratable and equitable fees for notices, applications, and examinations; and

(5) facilitate the fair hearing and adjudication of matters before the banking commissioner and the finance commission.

(b) The presence or absence in this subtitle of a specific reference to rules regarding a particular subject does not enlarge or diminish the rulemaking authority conferred by this section.

§181.004. Implying That Person Is Trust Company.

(a) A person or company may not use in a business name or advertising the words "trust," "trust company," or any similar term or phrase, any word pronounced "trust" or "trust company," any foreign word that means "trust" or "trust company," or any term that tends to imply that the business is holding out to the public that it engages in the business of a fiduciary for hire unless the banking commissioner has approved the use in writing after finding that the use will not be misleading. This subsection does not prohibit an individual from engaging in the business of a fiduciary for compensation or from using the words "trust" or "trustee" for the purpose of identifying assets held or actions taken in an existing capacity.

(b) Subsection (a) does not apply to:

(1) a trust institution authorized under this subtitle to conduct a trust business in this state; or

(2) another entity organized under the laws of this state, another state, the United States, or a foreign sovereign state to the extent that:

(A) the entity is authorized under its charter or the laws of this state or the United States to use a term, word, character, ideogram, phonogram, or phrase prohibited by Subsection (a); and

(B) the entity is authorized by the laws of this state or the United States to conduct the activities in which the entity is engaged in this state.

§181.005. Liability of Trust Company Directors and Personnel.

(a) The provisions of the Business Organizations Code regarding liability, defenses, and indemnification of a director, officer, agent, or employee apply to a director, officer, agent, or employee of a state trust company in this state. Except as limited by those provisions, a disinterested director, manager, managing participant, officer, or employee of a state trust company may not be held personally liable in an action seeking monetary damages arising from the conduct of the state trust company´s affairs unless the damages resulted from the gross negligence or wilful or intentional misconduct of the person during the person´s term of office or service with the state trust company.

(b) A director, manager, managing participant, officer, or employee of a state trust company is disinterested with respect to a decision or transaction if:

(1) the person fully discloses any interest in the decision or transaction and does not participate in the decision or transaction; or

(2) the decision or transaction does not involve any of the following:

(A) personal profit for the person through dealing with the state trust company or usurping an opportunity of the trust company;

(B) buying or selling assets of the state trust company in a transaction in which the person has a direct or indirect pecuniary interest;

(C) dealing with another state trust company or other person in which the person is a director, manager, managing participant, officer, or employee or otherwise has a significant direct or indirect financial interest; or

(D) dealing with a family member of the person.

(c) A director, manager, managing participant, or officer who, in performing the person´s duties and functions, acts in good faith and reasonably believes that reliance is warranted is entitled to rely on information, including an opinion, report, financial statement or other type of statement or financial data, decision, judgment, or performance, that is prepared, presented, made, or rendered by:

(1) one or more directors, managers, managing participants, officers, or employees of the state trust company, or of an entity under joint or common control with the state trust company, whom the director, manager, managing participant, or officer reasonably believes merits confidence;

(2) legal counsel, a public accountant, or another person whom the director, manager, managing participant, or officer reasonably believes merits confidence; or

(3) a committee of the board of the state trust company of which the director, manager, or managing participant is not a member.

(d) In this section, "family member" means a person´s:

(1) spouse;

(2) minor child; or

(3) adult child who resides in the person´s home.

§181.006. Exemption of Trust Institution Directors and Personnel from Securities Law.

An officer, director, manager, managing participant, or employee of a trust institution with fewer than 500 shareholders or participants, including a state trust company or a trust institution organized under the laws of another state that lawfully maintains an office in this state, or a holding company with fewer than 500 shareholders or participants that controls a trust institution is exempt from the registration and licensing provisions of The Securities Act (Title 12, Government Code) with respect to that person´s participation in a transaction, including a sale, involving securities issued by the trust institution or the holding company of which that person is an officer, director, manager, managing participant, or employee if the person is not compensated for the person´s participation in the transaction.

§181.007. Attachment, Injunction, or Execution.

An attachment, injunction, or execution to collect a money judgment or secure a prospective money judgment against a trust institution, including a state trust company or a trust institution organized under the laws of another state that lawfully maintains an office in this state, or against a client of or client account in the trust institution, is governed by Sections 59.007 and 59.008.

Subchapter B. Regulation of Trust Companies by Banking Department

§181.101. Issuance of Interpretive Statements.

(a) The banking commissioner:

(1) may issue interpretive statements containing matters of general policy for the guidance of the public and state trust companies; and

(2) may amend or repeal a published interpretive statement by issuing an amended statement or notice of repeal of a statement.

(b) An interpretive statement may be disseminated by newsletter, via an electronic medium such as the Internet, in a volume of statutes or related materials published by the banking commissioner or others, or by other means reasonably calculated to notify persons affected by the interpretive statement. Notice of an amended or withdrawn statement must be published in a substantially similar manner as the affected statement was originally published.

§181.102. Issuance of Opinion.

(a) In response to a specific request from a member of the public or industry, the banking commissioner may issue an opinion directly or through a deputy banking commissioner or department attorney.

(b) If the banking commissioner determines that the opinion is useful for the general guidance of trust companies and the public, the banking commissioner may disseminate the opinion by newsletter, via an electronic medium such as the Internet, in a volume of statutes or related materials published by the banking commissioner or others, or by other means reasonably calculated to notify persons affected by the opinion. A published opinion must be redacted to preserve the confidentiality of the requesting party unless the requesting party consents to be identified in the published opinion.

(c) The banking commissioner may amend or repeal a published opinion by issuing an amended opinion or notice of repeal of an opinion and disseminating the opinion or notice in a substantially similar manner as the affected statement or opinion was originally published. The requesting party, however, may rely on the original opinion if:

(1) all material facts were originally disclosed to the banking commissioner;

(2) the safety and soundness of the affected trust companies will not be affected by further reliance on the original opinion; and

(3) the text and interpretation of relevant governing provisions of this subtitle have not been changed by legislative or judicial action.

§181.103. Effect of Interpretive Statement or Opinion.

An interpretive statement or opinion issued under this subchapter does not have the force of law and is not a rule for the purposes of Chapter 2001, Government Code, unless adopted as a rule by the finance commission as provided by Chapter 2001, Government Code. An interpretive statement or opinion is an administrative construction of this subtitle entitled to great weight if the construction is reasonable and does not conflict with this subtitle.

§181.104. Examination Requirement.

(a) The banking commissioner shall examine each state trust company annually,6 or on another periodic basis as may be required by rule or policy, or as the commissioner considers necessary to:

(1) safeguard the interests of clients, creditors, shareholders, participants, or participant-transferees; and

(2) efficiently enforce applicable law.

(b) [Repealed]1

(d) Disclosure of information to the banking commissioner pursuant to an examination request or a subpoena issued under this section does not constitute a waiver of or otherwise affect or diminish an evidentiary privilege to which the information is otherwise subject. A report of an examination under this section is confidential and may be disclosed only under the circumstances provided by this subtitle.

(e) The banking commissioner may:

(1) accept an examination of a state trust company, a third-party contractor, or an affiliate of the state trust company by a federal or other governmental agency in lieu of an examination under this section; or

(2) conduct an examination of a state trust company, a third-party contractor, or an affiliate of the state trust company jointly with a federal or other governmental agency.

(f) The banking commissioner may:

(1) administer oaths and examine persons under oath on any subject that the banking commissioner considers pertinent to the financial condition or the safety and soundness of the activities of a state trust company; and

(2) subpoena witnesses and require and compel by subpoena the production of documents not voluntarily produced.

(f-1) If a person refuses to obey a subpoena, a district court of Travis County, on application by the commissioner, may issue an order requiring the person to appear before the commissioner and produce documents or give evidence regarding the matter under examination or investigation.

(g) A subpoena issued to a financial institution under this section is not subject to Section 59.006.

(h) Except to the extent disclosure is necessary to locate and produce responsive records or obtain legal representation and subject to Subsection (i), a subpoena issued under this section may provide that the person to whom the subpoena is directed or any person who comes into receipt of the subpoena may not:

(1) disclose that the subpoena has been issued;

(2) disclose or describe any records requested in the subpoena;

(3) disclose whether records have been furnished in response to the subpoena; or

(4) if the subpoena requires a person to be examined under oath, disclose or describe the examination, including the questions asked, the testimony given, or the transcript produced.

(i) A subpoena issued under this section may prohibit the disclosure of information described by Subsection (h) only if the banking commissioner finds, and the subpoena states, that:

(1) the subpoena, the examination, or the records relate to an ongoing investigation; and

(2) the disclosure could significantly impede or jeopardize the investigation.

§181.105. Cost of Regulation.

Each state trust company shall pay, through the imposition and collection of fees established by the finance commission under Section 181.003(a)(4):7

(1) the cost of examination;

(2) the equitable or proportionate cost of maintenance and operation of the department; and

(3) the cost of enforcement of this subtitle.

§181.106. Regulation and Examination of Related Entities.

(a) The banking commissioner may regulate and examine, to the same extent as if the services or activities were performed by a state trust company on its own premises:

(1) the activities of a state trust company affiliate; and

(2) the services or activities of a third-party service provider that a state trust company or state trust company affiliate has contracted for or otherwise arranged to be performed on behalf of the state trust company or state trust company affiliate.

(b) The banking commissioner may collect a fee from an examined third-party service provider or affiliate in connection with each examination to cover the cost of the examination or may collect that fee from the state trust companies that use the examined third-party service provider.

(c) To promote regulatory efficiency, if, in the preceding 24 months, a third-party service provider or affiliate has been examined by a federal or state financial services regulatory agency or by a member agency of the Federal Financial Institutions Examination Council, or its successor agency, the banking commissioner may accept the results of that examination instead of conducting the banking commissioner's own examination of the third-party service provider or affiliate. Nothing in this subsection shall be construed as limiting or restricting the banking commissioner from participating in an examination of a third-party service provider or affiliate conducted by a federal or state financial services regulatory agency or by a member agency of the Federal Financial Institutions Examination Council, or its successor agency.

(d) A third-party service provider that refuses to submit to examination or to pay an assessed fee for examination under this section is subject to an enforcement action under Chapter 185. With respect to a third-party service provider's refusal to submit to examination, the banking commissioner may notify all state trust companies of the refusal and warn that continued use of the third-party service provider may constitute an unsafe and unsound fiduciary practice.

§181.107. Statements of Condition and Income; Penalty.

(a) Each state trust company periodically shall file with the banking commissioner a copy of its statement of condition and income.

(b) The finance commission by rule may:8

(1) require the statement to be filed with the banking commission at the intervals the finance commission determines;

(2) specify the form of the statement of condition and income, including specified confidential and public information to be in the statement; and

(3) require public information in the statement to be published at the times and in the publications and locations the finance commission determines.

(1) portions of the statement designated confidential by the banking commissioner; and

(2) the statement of condition and income for a state trust company exempt under Section 182.011 or 182.019 with regard to the period during which the exemption is in effect.

(d) A state trust company that fails to file a statement of condition and income on or before the date it is due is, after notice and hearing, subject to a penalty of not more than $500 a day for each day of noncompliance.

§181.108. Liability of Commission and Department Officers and Personnel Limited.

(a) The banking commissioner, a member of the finance commission, a deputy banking commissioner, an examiner, assistant examiner, supervisor, conservator, agent, or other officer or employee of the department, or an agent of the banking commissioner is not personally liable for damages arising from the person´s official act or omission unless the act or omission is corrupt or malicious.

(b) The attorney general shall defend an action brought against a person because of an official act or omission under Subsection (a), regardless of whether the defendant has terminated service with the department before the action commences.

Subchapter C. Administrative Procedure

§181.201. Banking Commissioner Hearing; Informal Disposition9

(a) The banking commissioner may convene a hearing to receive evidence and argument regarding any matter within the jurisdiction of and before the banking commissioner for decision or review. The hearing must be conducted under Chapter 2001, Government Code. A matter made confidential by law must be considered by the banking commissioner in a closed hearing.

(b) A hearing before the banking commissioner that is required or authorized by law may be conducted by a hearings officer on behalf of the banking commissioner.

(d) The banking commissioner may informally dispose of a matter within the jurisdiction of and before the banking commissioner by consent order, agreed settlement, or default.

§181.202. Appeal of Banking Commissioner Decision or Order.

Except as expressly provided otherwise by this subtitle, a person affected by a decision or order of the banking commissioner made under this subtitle after a hearing may appeal the decision or order to a district court in Travis County as provided by Section 181.204.

§181.203. Appeal to Finance Commission. [Repealed] 1

§181.204. Appeal to District Court.

A person affected by a final order of the banking commissioner may appeal the final order by filing a petition for judicial review as provided by Chapter 2001, Government Code. A petition for judicial review filed in the district court does not stay or vacate the appealed order unless the court, after notice and hearing, expressly stays or vacates the order.

§181.301. Disclosure by Department Prohibited.

(a) Except as expressly provided otherwise by this subtitle or a rule adopted under this subtitle, the following are confidential and may not be disclosed by the banking commissioner or an employee of the department:

(1) information directly or indirectly obtained by the department in any manner, including through an application or examination, concerning the financial condition or business affairs of a state trust company, a present, former, or prospective shareholder, participant, officer, director, manager, or affiliate of the state trust company, or a third-party service provider of the state trust company or its affiliate, other than the public portions of a report of condition or income statement; and

(2) each related file or record of the department.

(b) Information obtained by the department from a federal or state regulatory agency that is confidential under federal or state law may not be disclosed except as provided by federal or state law.

(1) discloses information or permits access to a file or record of the department; and

(2) knows at the time of disclosure or permission that the disclosure or permission violates this subchapter.

(d) An offense under this section is a Class A misdemeanor.

§181.3015. Disclosure to State Trust Companies.

The banking commissioner may disclose to a state trust company information about an affiliate or third-party service provider of the state trust company.

§181.302. Disclosure to Finance Commission.

Confidential information may not be disclosed to a member of the finance commission. A member of the finance commission may not be given access to the files and records of the department except that the banking commissioner may disclose to the finance commission information, files, and records pertinent to a hearing or matter pending before the finance commission.

§181.303. Disclosure to Other Agencies.

(a) For purposes of this section, "affiliated group," "agency," "functional regulatory agency," and "privilege" have the meanings assigned by Section 31.303.

(b) The banking commissioner may, as the banking commissioner considers necessary or proper to the enforcement of the laws of this state, another state, the United States, or a foreign sovereign state with whom the United States currently maintains diplomatic relations, or in the best interest of the public, disclose information in the possession of the department to another agency. The banking commissioner may not disclose information under this section that is confidential under applicable state or federal law unless:

(1) the recipient agency agrees to maintain the confidentiality and take all reasonable steps to oppose an effort to secure disclosure of the information from the agency; or

(2) the banking commissioner determines in the exercise of discretion that the interest of law enforcement outweighs and justifies the potential for disclosure of the information by the recipient agency.

(c) The banking commissioner by agreement may establish an information sharing and exchange program with a functional regulatory agency that has overlapping regulatory jurisdiction with the department, with respect to all or part of an affiliated group, including a financial institution, to reduce the potential for duplicative and burdensome filings, examinations, and other regulatory activities. Each agency party to the agreement must agree to maintain confidentiality of information that is confidential under applicable state or federal law and take all reasonable steps to oppose any effort to secure disclosure of the information from the agency. An agreement may also specify procedures regarding use and handling of confidential information and identify types of information to be shared and procedures for sharing on a recurring basis.

(d) Disclosure of information by or to the banking commissioner under this section does not constitute a waiver of or otherwise affect or diminish an evidentiary privilege to which the information is otherwise subject, whether or not the disclosure is governed by a confidentiality agreement.

(e) Notwithstanding other law, an agency of this state:

(1) may execute, honor, and comply with an agreement to maintain confidentiality and oppose disclosure of information obtained from the banking commissioner as provided in this section; and

(2) shall treat as confidential any information obtained from the banking commissioner that is entitled to confidential treatment under applicable state or federal law and take all reasonable steps to oppose an effort to secure disclosure of the information from the agency.

§181.304. Other Disclosure Prohibited; Penalty.

(a) Confidential information that is provided to a state trust company, affiliate, or service provider of the state trust company, whether in the form of a report of examination or otherwise, is the confidential property of the department. The information may not be made public or disclosed by the recipient or by an officer, director, manager, employee, or agent of the recipient to a person not officially connected to the recipient as officer, director, employee, attorney, auditor, independent auditor, or bonding company, except as authorized by rules adopted under this subtitle.

(b) A person commits an offense if the person discloses or uses the confidential information in violation of this section. An offense under this subsection is punishable as if it were an offense under Section 37.10, Penal Code.

§181.305. Civil Discovery.

Civil discovery of confidential information from a person subject to Section 181.304 under subpoena or other legal process in a civil proceeding must comply with rules adopted under this subtitle and other applicable law. The rules may:

(1) restrict release of confidential information to the portion directly relevant to the legal dispute at issue; and

(2) require that a protective order, in the form and under circumstances specified by the rules, be issued by a court before release of the confidential information.12

§181.306. Investigative Information.

Notwithstanding any other law, the banking commissioner may refuse to release information or records concerning a state trust company in the custody of the department if, in the opinion of the banking commissioner, release of the information or records might jeopardize an ongoing investigation of potentially unlawful activity.

§181.307. Employment Information.

(a) A person may provide employment information concerning the known or suspected involvement of a present or former employee, officer, or director of a state trust company in a violation of any state or federal law, rule, or regulation that has been reported to appropriate state or federal authorities to:

(1) a state trust company; or

(2) a person providing employment information to a state trust company.

(b) A person may not be held liable for providing information under Subsection (a) unless the information provided is false and the person provided the information with disregard for the truth.

§181.308. Shareholder Inspection Rights.

(a) Notwithstanding Section 21.218 or 101.502, Business Organizations Code, a shareholder or participant of a state trust company may not examine:

(1) a report of examination or other confidential property of the department that is in the possession of the state trust company; or

(2) a book or record of the state trust company that directly or indirectly pertains to financial or other information maintained by the state trust company on behalf of its clients, including a specific item in the minutes of the board or a committee of the board regarding client account review and approval or any report that would tend to identify the state trust company´s client.

(b) This section does not affect the rights of a shareholder or participant of a state trust company acting in another capacity.

CHAPTER 182. POWERS, ORGANIZATION, AND FINANCIAL REQUIREMENTS (TITLE 3; SUBTITLE F)

Subchapter A. Organization and Powers in General

§182.001. Organization and General Powers of State Trust Company.

(a) Subject to Subsection (g) and the other provisions of this chapter, one or more persons may organize and charter a state trust company as a state trust association or a limited trust association.

(b) A state trust company may engage in the trust business by:

(1) acting as trustee under a written agreement;

(2) receiving money and other property in its capacity as trustee for investment in real or personal property;

(3) acting as trustee and performing the fiduciary duties committed or transferred to it by order of a court;

(4) acting as executor, administrator, or trustee of the estate of a deceased person;

(5) acting as a custodian, guardian, conservator, or trustee for a minor or incapacitated person;

(6) acting as a successor fiduciary to a trust institution or other fiduciary;

(7) receiving for safekeeping personal property;

(8) acting as custodian, assignee, transfer agent, escrow agent, registrar, or receiver;

(9) acting as investment advisor, agent, or attorney in fact according to an applicable agreement;

(10) with the prior written approval of the banking commissioner and to the extent consistent with applicable fiduciary principles, engaging in a financial activity or an activity incidental or complementary to a financial activity, directly or through a subsidiary;

(11) exercising additional powers expressly conferred by rule of the finance commission; and

(12) exercising any incidental power that is reasonably necessary to enable it to fully exercise the powers expressly conferred according to commonly accepted fiduciary customs and usages.

(c) For purposes of other state law, a trust association is considered a corporation and a limited trust association is considered a limited liability company. To the extent consistent with this subtitle, a trust association may exercise the powers of a Texas business corporation and a limited trust association may exercise the powers of a Texas limited liability company as reasonably necessary to enable exercise of specific powers under this subtitle.

(d) A state trust company may contribute to a community fund or to a charitable, philanthropic, or benevolent instrumentality conducive to public welfare an amount that the state trust company´s board considers appropriate and in the interests of the state trust company.

(e) Subject to Section 184.301, a state trust company may deposit trust funds with itself.

(f) A state trust company insured by the Federal Deposit Insurance Corporation may receive and pay deposits, with or without interest, made by the United States, the state, a county, or a municipality.

(g) In the exercise of discretion consistent with the purposes of this subtitle, the banking commissioner may require a state trust company to conduct an otherwise authorized activity through a subsidiary.

§182.002. Certificate of Formation of State Trust Company.

(a) The certificate of formation of a state trust company must be signed and acknowledged by each organizer and must contain:

(1) the name of the state trust company, subject to Subsection (b);

(2) the period of the state trust company's duration, which may be perpetual;

(3) the powers of the state trust company, which may be stated as:

(A) all powers granted to a state trust company in this state; or

(B) a list of the specific powers that the state trust company chooses and is authorized to exercise;

(4) the aggregate number of shares, or participation shares in the case of a limited trust association, that the state trust company will be authorized to issue, and the number of classes of shares or participation shares, which may be one or more;

(5) if the shares or participation shares are to be divided into classes:

(A) the designation of each class and statement of the preferences, limitations, and relative rights of the shares or participation shares of each class, which in the case of a limited trust association may be more fully set forth in the participation agreement;

(B) the number of shares or participation shares of each class; and

(C) a statement of the par value of the shares or participation shares of each class or that the shares or participation shares are to be without par value;

(6) any provision limiting or denying to shareholders or participants the preemptive right to acquire additional or treasury shares or participation shares of the state trust company;

(7) any provision granting the right of shareholders or participants to cumulative voting in the election of directors or managers;

(8) the aggregate amount of consideration to be received for all shares or participation shares initially issued by the state trust company and a statement that:

(A) all authorized shares or participation shares have been subscribed; and

(B) all subscriptions received have been irrevocably paid in cash;

(9) any provision consistent with law that the organizers elect to set forth in the certificate of formation for the regulation of the internal affairs of the state trust company or that is otherwise required by this subtitle to be set forth in the certificate of formation;

(10) the street address of the state trust company's home office; and

(11) either:

(A) the number of directors or managers constituting the initial board and the names and street addresses of the persons who are to serve as directors or managers until the first annual meeting of shareholders or participants or until successor directors or managers have been elected and qualified; or

(B) the statement described by Subsection (c).

(b) The banking commissioner may determine that a proposed state trust company name is potentially misleading to the public and require the organizers to select a different name.

(c) The organizers of a limited trust association that will have not fewer than five or more than 25 participants may include in the certificate of formation a statement that management is vested in a board composed of all participants, with management authority vested in each participant in proportion to the participant's contribution to capital as adjusted from time to time to properly reflect any additional contribution, and the names and street addresses of the persons who are to be the initial managing participants.

§182.003. Application for State Trust Company Charter; Standards for Approval.

(a) An application for a state trust company charter must be made under oath and in the form required by the banking commissioner. The application must be supported by information, records, and opinions of counsel that the banking commissioner requires. The application must be accompanied by all charter fees and deposits required by statute or rule.1

(b) The banking commissioner shall grant a state trust company charter only on proof satisfactory to the banking commissioner that public convenience and advantage will be promoted by the establishment of the state trust company. In determining whether public convenience and advantage will be promoted, the banking commissioner shall consider the convenience of the public to be served and whether:

(1) the organizational and capital structure and amount of initial capitalization is adequate for the business and location;

(2) the anticipated volume and nature of business indicates a reasonable probability of success and profitability based on the market sought to be served;

(3) the proposed officers, directors, and managers, or managing participants, as a group have sufficient fiduciary experience, ability, standing, competence, trustworthiness, and integrity to justify a belief that the state trust company will operate in compliance with law and that success of the state trust company is probable;

(4) each principal shareholder or participant has sufficient experience, ability, standing, competence, trustworthiness, and integrity to justify a belief that the state trust company will be free from improper or unlawful influence or interference with respect to the state trust company´s operation in compliance with law; and

(5) the organizers are acting in good faith.

(c) The organizers bear the burden of proof to establish that public convenience and advantage will be promoted by the establishment of the state trust company. The failure of an applicant to furnish required information, opinions of counsel, and other material, or the required fee, is considered an abandonment of the application.

§182.004. Notice and Investigation of Charter Application.

(a) The organizers shall solicit comments and protests by publishing notice of the application, its date of filing, and the identity of the organizers, in the form and frequency specified by the banking commissioner, in a newspaper of general circulation in the county where the initial home office of the proposed state trust company is to be located, or in another publication or location as directed by the banking commissioner. The banking commissioner may require the organizers to publish the notice at other locations reasonably necessary to solicit the views of potentially affected persons.

(b) At the expense of the organizers, the banking commissioner shall thoroughly investigate the application and inquire fully into the identity and character of each proposed director, manager, officer, managing participant, and principal shareholder or participant. The banking commissioner shall prepare a written report of the investigation.

(c) Rules adopted under this subtitle may specify the confidential or nonconfidential character of information obtained or prepared by the department under this section. Except as provided by Subchapter D, Chapter 181, or in rules regarding confidential information,2 the business plan of the applicant and the financial statement of a proposed officer, director, manager, or managing participant are confidential and not subject to public disclosure.

§182.005. Protest; Hearing; Decision on Charter Application.

(a) A protest of a charter application must be received by the department before the 15th day after the date the organizers publish notice under Section 182.004(a) and must be accompanied by the fees and deposits required by law.3 If the protest is untimely, the department shall return all submitted fees and deposits to the protesting party. If the protest is timely, the department shall notify the applicant of the protest and mail or deliver a complete copy of the nonconfidential sections of the charter application to the protesting party before the 15th day after the later of the date of receipt of the protest or receipt of the charter application.

(b) A protesting party must file a detailed protest responding to each contested statement contained in the nonconfidential portion of the application not later than the 20th day after the date the protesting party receives the application from the department, and relate each statement and response to the standards for approval set forth in Section 182.003(b).4 The applicant must file a written reply to the protesting party's detailed response on or before the 10th day after the date the response is filed. The protesting party's response and the applicant's reply must be verified by affidavit and must certify that a copy was served on the opposing party. If applicable, statements in the response and in the reply may be supported by references to data available in sources of which official notice may properly be taken. Any comment received by the department and any reply of the applicant to the comment shall be made available to the protesting party.

(c) The banking commissioner may not be compelled to hold a hearing before granting or denying the charter application. In the exercise of discretion, the banking commissioner may consider granting a hearing on a charter application at the request of the applicant or a protesting party. The banking commissioner may order a hearing regardless of whether a hearing has been requested by a party. A party requesting a hearing must indicate with specificity the issues involved that cannot be determined on the basis of the record compiled under Subsection (b) and why the issues cannot be determined. A request for hearing and the banking commissioner's decision with regard to granting a hearing shall be made a part of the record. If the banking commissioner sets a hearing, the banking commissioner shall conduct a public hearing and as many prehearing conferences and opportunities for discovery as the banking commissioner considers advisable and consistent with governing statutes and rules, except that the banking commissioner may not permit discovery of confidential information in the charter application or the investigation report.

(d) Based on the record, the banking commissioner shall determine whether all of the necessary conditions set forth in Section 182.003(b) have been established and shall enter an order granting or denying the charter.

(e) The banking commissioner may make approval of any application conditional. The banking commissioner shall include any conditions in the order granting the charter.

(f) Chapter 2001, Government Code, does not apply to a charter application filed for the purpose of assuming all or any portion of the assets, liabilities, and accounts of a trust institution considered by the banking commissioner to be in hazardous condition.

§182.006. Issuance of Charter.

A state trust company may not engage in the trust business until it receives its charter from the banking commissioner. The banking commissioner may not deliver the charter until the state trust company has:

(1) received cash in at least the full amount of restricted capital from subscriptions for the issuance of shares or participation shares;

(2) elected or qualified the initial officers and directors or managers, as appropriate, named in the application for charter or other officers and directors or managers approved by the banking commissioner; and

(3) complied with all other requirements of this subtitle relating to the organization of the state trust company.

§182.007. Deadline to Begin Business.

If a state trust company does not open and engage in the trust business within six months after the date it receives its charter or conditional approval of application for charter, the banking commissioner may revoke the charter or cancel the conditional approval of application for charter without judicial action.

§182.008. Restricted Capital.

(a) The banking commissioner may not issue a charter to a state trust company having restricted capital of less than $2 million.

(b) The banking commissioner may, on a case-by-case basis, require additional restricted capital for a proposed or existing state trust company if the banking commissioner finds the condition and operations of the existing state trust company or the proposed scope or type of operations of the proposed state trust company requires additional restricted capital to protect the safety and soundness of the state trust company. The safety and soundness factors to be considered by the banking commissioner in the exercise of discretion include:

(1) the nature and type of business the state trust company conducts;

(2) the nature and degree of liquidity in assets held in a corporate capacity;

(3) the amount, type, and depository of fiduciary assets that the state trust company manages;

(4) the complexity of the state trust company´s fiduciary duties and degree of discretion undertaken;

(5) the competence and experience of the state trust company´s management;

(6) the extent and adequacy of internal controls maintained by the state trust company;

(7) the presence or absence of annual unqualified audits by an independent certified public accountant;

(8) the reasonableness of the state trust company´s business plans for retaining or acquiring additional restricted capital; and

(9) the existence and adequacy of insurance obtained or held by the state trust company to protect its clients, beneficiaries, and grantors.

(c) The effective date of an order under Subsection (b) must be stated in the order and must be on or after the 21st day after the date the order is mailed or delivered. Unless the state trust company requests a hearing before the banking commissioner in writing before the effective date of the order, the order takes effect and is final and nonappealable.6 This subsection does not prohibit an application to reduce capital requirements of an existing state trust company under Subsection (e) or under Section 182.011.

(d) Subject to Subsection (e) and Section 182.011, a state trust company to which the banking commissioner issues a charter shall at all times maintain restricted capital in at least the amount required under Subsection (a) and in any additional amount the banking commissioner requires under Subsection (b).

(e) Notwithstanding Subsection (a), on application, the banking commissioner may, on a case-by-case basis in the exercise of discretion, reduce the amount of minimum restricted capital required for a state trust company in a manner consistent with protecting the state trust company´s safety and soundness. In making a determination under this subsection, the banking commissioner shall consider the factors listed by Subsection (b).

§182.009. Application of General Corporate Law.

(a) The Business Organizations Code applies to a trust association as if it were a for-profit corporation, and to a limited trust association as if it were a limited liability company, to the extent not inconsistent with this subtitle or the proper business of a state trust company, except that:

(1) a reference to the secretary of state means the banking commissioner unless the context requires otherwise; and

(2) the right of shareholders or participants to cumulative voting in the election of directors or managers exists only if granted by the state trust company´s certificate of formation.

(b) Unless expressly authorized by this subtitle or a rule of the finance commission, a state trust company may not take an action authorized by a law listed under Subsection (a) regarding its corporate status, capital structure, or a matter of corporate governance, of the type for which a law listed under Subsection (a) would require a filing with the secretary of state if the state trust company were a filing entity, without submitting the filing to the banking commissioner for prior written approval of the action.

(c) The finance commission may adopt rules to alter or supplement the procedures and requirements of the laws listed by Subsection (a) applicable to an action taken under this chapter by a state trust company.7

(d) In this subtitle, a reference to a term or phrase listed in a subdivision of Section 1.006, Business Organizations Code, includes a synonymous term or phrase referenced by the same subdivision in Section 1.006 of that code.

§182.010. Parity.

(a) A state trust company has the same rights and privileges with respect to the exercise of fiduciary powers that are or may be granted to a trust institution that maintains its principal office or a branch or trust office in this state, except that this section may not be used by a state trust company to:

(1) diminish its otherwise applicable fiduciary duties to a client under the laws of this state; or

(2) avoid otherwise applicable consumer protection laws of this state.

(b) A state trust company that intends to exercise a right or privilege with respect to the exercise of fiduciary powers granted to a trust institution described in Subsection (a) that is not authorized for state trust companies under the statutes and rules of this state other than under this section shall submit a letter to the banking commissioner, describing in detail the activity in which the state trust company intends to engage and the specific authority for the trust institution described in Subsection (a) to undertake the proposed activity. The state trust company shall attach copies, if available, of relevant state and federal law, including regulations and interpretive letters. The state trust company may begin to perform the proposed activity after the 30th day after the date the banking commissioner receives the state trust company´s letter unless the banking commissioner specifies an earlier or later date or prohibits the activity. The banking commissioner may prohibit the state trust company from performing the activity only if the banking commissioner finds that:

(1) a trust institution described in Subsection (a) does not possess the specific right or privilege to perform the activity the state trust company seeks to perform; or

(2) the performance of the activity by the state trust company would adversely affect the safety and soundness of the requesting state trust company.

(c) The banking commissioner may extend the 30-day period under Subsection (b) if the banking commissioner determines that the state trust company´s letter raises issues requiring additional information or additional time for analysis. If the 30-day period is extended, the state trust company may perform the proposed activity only on prior written approval by the banking commissioner, except that the banking commissioner must approve or prohibit the proposed activity or convene a hearing under Section 181.201 not later than the 60th day after the date the commissioner receives the state trust company´s letter. If a hearing is convened, the banking commissioner must approve or prohibit the proposed activity not later than the 30th day after the date the hearing is completed.

(d) A state trust company that is denied the requested right or privilege to engage in an activity by the banking commissioner under this section may appeal as provided by Sections 181.202 and 181.204 or may resubmit a letter under this section with additional information or authority relevant to the banking commissioner´s determination. A denial is immediately final for purposes of appeal.

(e) The finance commission may adopt rules implementing the method or manner in which a state trust company exercises specific rights and privileges, including rules regarding the exercise of rights and privileges that would be prohibited to state trust companies under state law except as provided by this section. The finance commission may not adopt rules under this subsection unless it finds that:

(1) trust institutions described in Subsection (a) possess the rights or privileges to perform activities the rules would permit state trust companies to perform; and

(2) if the rights and privileges would be prohibited to state trust companies under other state law, the rules contain adequate safeguards and controls, consistent with safety and soundness, to address the concern of the legislature evidenced by the state law the rules would impact.

(f) The exercise of rights and privileges by a state trust company in compliance with and in the manner authorized by this section is not a violation of any statute of this state.

§182.0105. Financial Activities.

(a) The finance commission by rule may determine that an activity not otherwise approved or authorized for state trust companies is:

(1) a financial activity;

(2) incidental to a financial activity; or

(3) complementary to a financial activity.

(b) In adopting a rule under Subsection (a), the finance commission shall consider:

(1) the purposes of this subtitle and the Gramm-Leach-Bliley Act (Pub. L. No. 106-102);

(2) changes or reasonably expected changes in the marketplace in which state trust companies compete;

(3) changes or reasonably expected changes in the technology for delivering fiduciary and financial services;

(4) whether the activity is necessary or appropriate to allow a state trust company to:

(A) compete effectively with another company seeking to provide fiduciary and financial services;

(B) efficiently deliver information and services that are financial in nature through the use of technological means, including an application necessary to protect the security or efficacy of systems for the transmission of data or financial transactions; or

(C) offer customers available or emerging technological means for using fiduciary and financial services or for the document imaging of data;

(5) whether the activity would violate applicable fiduciary duties or otherwise pose a substantial risk to the safety and soundness of a state trust company or the fiduciary and financial system generally; and

(6) if otherwise determined to be permissible, whether the conduct of the activity by a state trust company should be qualified through the imposition of reasonable and necessary conditions to protect the public and require appropriate regard for safety and soundness of the trust company and the fiduciary and financial system generally.

(c) A rule adopted by the finance commission under this section does not alter or negate applicable licensing and regulatory requirements administered by a functional regulatory agency of this state, as defined by Section 31.303, including licensing and regulatory requirements pertaining to:

(1) insurance activities;

(2) securities activities; and

(3) real estate development, marketing, and sales activities.

§182.011. Exemption from Statutory Provisions for Certain State Trust Companies.

(a) A state trust company may request in writing that it be exempted from specified provisions of this subtitle. The banking commissioner may grant the exemption in whole or in part, subject to Subsection (c), if the banking commissioner finds that the state trust company:

(1) has only family clients and transacts business solely on behalf of family clients and their related interests;

(2) is wholly owned, directly or indirectly, legally or beneficially,by one or more family members; and

(3) does not hold itself out to the general public as a corporate fiduciary for hire.

(a-1) In this section:

(1) "Family client" includes:

(A) a family member;

(B) a former family member;

(C) a key employee of the trust company as defined by and to the extent permitted by rules adopted under Subsection (e), including a former key employee for a reasonable transition period specified by rule;

(D) a nonprofit organization, charitable foundation, charitable trust, including a charitable lead trust or charitable remainder trust whose only current beneficiaries are other family clients and charitable or nonprofit organizations, or another charitable organization for which all the funding came exclusively from one or more other family clients;

(E) the estate of a family member or former family member;

(F) an irrevocable trust under which one or more other family clients are the only current beneficiaries;

(G) an irrevocable trust funded exclusively by one or more family clients in which other family clients and nonprofit organizations, charitable foundations, charitable trusts, or other charitable organizations are the only current beneficiaries;

(H) a company wholly owned by, and operated for the sole benefit of, one or more other family clients;

(I) a revocable trust of which one or more other family clients are the sole grantors, including any such trust that becomes irrevocable, wholly or partly, for a reasonable transition period as specified by rule; and

(J) any other persons as may be permitted by rules adopted under Subsection (e).

(2) "Family member," with respect to an individual, means an individual related to the individual within the seventh degree of consanguinity or affinity, as determined under Subchapter B, Chapter 573, Government Code, except that a foster child is considered the child of the foster parent and a person for whom a guardian was appointed before the person's 18th birthday is considered the child of the guardian.

(3) "Former family member" includes a former spouse or stepchild who was a family member but is no longer a family member due to a divorce or other similar event.

(b) At the expense of a state trust company, the banking commissioner may examine or investigate the state trust company in connection with an application for an exemption. Unless the application presents novel or unusual questions, the banking commissioner shall approve the application for exemption or set the application for hearing not later than the 61st day after the date the banking commissioner considers the application complete and accepted for filing. The banking commissioner may require the submission of additional information as considered necessary to an informed decision.

(c) An exemption granted under this section may be made subject to conditions or limitations imposed by the banking commissioner consistent with this subtitle.

(d) A state trust company that is or has been exempt from a provision of this subtitle under this section or a predecessor statute may not transact business with the general public unless the banking commissioner determines, as provided by Section 182.003, that public convenience and advantage will be promoted by permitting the state trust company to engage in the trust business with the general public.

(e) The finance commission may adopt rules:

(1) defining other circumstances under which a state trust company may be exempted from a provision of this subtitle because it does not transact business with the general public;

(2) specifying the provisions of this subtitle that are subject to an exemption request;

(3) establishing procedures and requirements for obtaining, maintaining, or revoking an exemption.8; and

(4) defining or further defining terms used by this section.

§182.012. Application for Exemption.

(a) A state trust company requesting an exemption under Section 182.011 shall file an application with the banking commissioner that includes:

(1) a nonrefundable application fee set by the finance commission;

(2) a detailed sworn statement showing the state trust company´s assets and liabilities as of the end of the calendar month preceding the filing of the application;

(3) a sworn statement of the reason for requesting the exemption;

(4) a sworn statement that the state trust company:

(A) has or will have only family clients and transacts or will transact business solely on behalf of family clients and their related interests;

(B) is or will be wholly owned, directly or indirectly, legally or beneficially, by one or more family members;

(D) will not transact business with the general public without the prior written permission of the banking commissioner;

(5) the current street mailing address and telephone number of the physical location in this state at which the state trust company will maintain its books and records, with a sworn statement that the address given is true and correct and is not a United States Postal Service post office box or a private mail box, postal box, or mail drop; and

(6) a list of the specific provisions of this subtitle for which the request for an exemption is made.

(b) The banking commissioner may not approve an exemption unless the application is completed as required by Subsection (a).

§182.013. Annual Certification for Exempt State Trust Company.

(a) An exempt state trust company shall file a certification annually with its statement of condition and income, on a form provided by the banking commissioner, that it is maintaining the conditions and limitations of its exemption. The certification must be accompanied by a fee set by the finance commission.

(b) [Repealed]1

(c) The state trust company shall maintain records necessary to verify the certification.The records are subject to examination under Section 181.104.

§182.014. Limitation on Effect of Exemption.

(a) An exempt state trust company shall comply with the home office provisions of Section 182.202.

(b) The grant of an exemption to a state trust company does not affect the state trust company´s obligation to pay any corporate franchise tax required by state law.

§182.015. Change of Control of Exempt State Trust Company.

If control of an exempt state trust company is sold or otherwise transferred, the acquiring person must comply with Sections 182.003, 182.004, 182.005, 183.001, and 183.002. For the exempt status of the state trust company to continue, the acquiring person must file a certification with the banking commissioner that the state trust company will comply, or continue to comply, with the requirements of Section 182.011 after control is transferred. The banking commissioner may examine or investigate the acquiring person and the state trust company as necessary to verify the certification. If the commissioner determines that the state trust company will not comply, or continue to comply, with the requirements of Section 182.011 after control is transferred, the commissioner shall terminate the exemption on the effective date of the transfer. After the termination, the acquiring person must file a separate application to obtain a new exemption for the sate trust company under Section 182.011.

§182.016. Grounds for Revocation of Exemption.

The banking commissioner may revoke an exemption of a state trust company if the trust company:

(1) makes a false statement under oath on any document required to be filed by this subtitle or finance commission rule;

(2) fails to submit to an examination as required by Section 181.104;

(3) withholds requested information from the banking commissioner; or

(4) violates any provision of this subtitle applicable to an exempt state trust company.

§182.017. Notice and Effect of Revocation of Exemption.

(a) If the banking commissioner determines from examination or other credible evidence that an exempt state trust company has violated any of the requirements of this subchapter relating to an exempt state trust company, the banking commissioner may by personal delivery or registered or certified mail, return receipt requested, notify the state trust company in writing that the state trust company´s exemption has been revoked. The notice must state grounds for the revocation with reasonable certainty. The notice must state its effective date, which may not be earlier than the fifth day after the date the notification is mailed or delivered.

(b) The revocation takes effect for the state trust company if the state trust company does not request a hearing in writing before the effective date. After taking effect the revocation is final and nonappealable as to that state trust company, and the state trust company is subject to all of the requirements and provisions of this subtitle applicable to nonexempt state trust companies.

§182.018. Action after Revocation of Exemption.

(a) A state trust company must comply with all of the provisions of Sections 182.003(b) and (c) not later than the fifth day after the date the revocation of the exemption takes effect. If, however, the banking commissioner determines at the time of revocation that the state trust company has been engaging in or attempting to engage in acts intended or designed to deceive or defraud the public, the banking commissioner, in the banking commissioner´s sole discretion, may waive the compliance period provided by this subsection.

(b) If within the period prescribed by Subsection (a) the state trust company does not comply with all of the provisions of this subtitle, including capitalization requirements determined by the banking commissioner as necessary to assure the safety and soundness of the state trust company, the banking commissioner may:

(1) institute any action or remedy prescribed by this subtitle or any applicable rule; or

(2) refer the state trust company to the attorney general for institution of a quo warranto proceeding to revoke the state trust company´s charter.

§182.019. Prior Exemption.

(a) Subject to Subsection (b), a state trust company that was exempt before September 1, 1997, may no longer operate with that prior exempt status after the earlier of:

(1) September 1, 2020; or

(2) The date control is sold or otherwise transferred.

(b) A state trust company may apply for a new exemption under Section 182.011 before loss of its exempt status under Subsection (a).

§182.020. Foreign Corporation Exercising Trust Powers.

(a) A foreign corporation may not conduct a trust business in this state. A foreign corporation may control a state trust company in this state if the state trust company is formed or acquired and operated as provided by this subtitle and applicable rules.

(b) A foreign corporation or other entity chartered or domiciled in another jurisdiction as a trust company or depository institution with trust powers may act as a trustee in this state only as provided by Subchapter A, Chapter 505, Estates Code.

§182.021. Activities Not Requiring Charter.

Subject to Subchapter C, Chapter 187, a company does not engage in the trust business in a manner requiring a state charter by:

(1) acting in a manner authorized by law and in the scope of authority as an agent of a trust institution;

(2) rendering a service customarily performed as an attorney in a manner approved and authorized by the Supreme Court of Texas or State Bar of Texas;

(3) acting as trustee under a deed of trust made only as security for the payment of money or for the performance of another act;

(4) conducting business as a trust institution if the exercise of fiduciary powers in this state by the trust institution is not otherwise prohibited by law;

(5) engaging in a business regulated by the Office of Consumer Credit Commissioner, except as limited by rules adopted by the finance commission;

(6) receiving and distributing rents and proceeds of sale as a licensed real estate broker on behalf of a principal in a manner authorized by the Texas Real Estate Commission;

(7) engaging in a securities transaction or providing an investment advisory service as a licensed and registered dealer, salesman, or advisor to the extent that the activity is regulated by the State Securities Board or the Securities and Exchange Commission;

(8) engaging in the sale and administration of an insurance product by an insurance company or agent authorized or licensed by the Texas Department of Insurance to the extent that the activity is regulated by the Texas Department of Insurance;

(9) engaging in the lawful sale of prepaid funeral benefits under a permit issued by the banking commissioner under Chapter 154;

(10) engaging in the lawful business of a perpetual care cemetery corporation under Chapter 712, Health and Safety Code;

(11) engaging as a principal in the money services business under a license issued by the banking commissioner under Chapter 152;

(12) acting as trustee under a voting trust as provided by Section 6.251, Business Organizations Code;

(13) acting as trustee by a public, private, or independent institution of higher education or a university system, as defined by Section 61.003, Education Code, including an affiliated foundation or corporation of such an institution or system acting as trustee as provided by the Education Code;

(14) engaging in another activity expressly excluded from the application of this subtitle by rule of the finance commission;

(15) rendering services customarily performed by a certified accountant in a manner authorized by the Texas State Board of Public Accountancy;

(16) serving as trustee of a charitable trust as provided by Section 2.106, Business Organizations Code;

(17) performing escrow or settlement services if licensed or authorized under Title 11, Insurance Code;

(18) acting as a qualified intermediary in a tax deferred exchange under Section 1031, Internal Revenue Code of 1986, and applicable regulations;

(19) providing permitted services at a trust representative office established in this state pursuant to Subchapter C, Chapter 187; or

(20) acting as a trustee or custodian approved by the Internal Revenue Service under 26 C.F.R. Section 1.408-2(e) of an individual retirement account described by Section 408(a), Internal Revenue Code of 1986.

§182.0211. Conformance With Securities Act.

For the purposes of Section 182.021(7), "salesman" includes "agent" and "advisor" includes "investment adviser" or "investment adviser representative."

Subchapter B. Amendment of Certificate; Changes in Capital and Surplus 1

§182.101. Amendment or Restatement of State Trust Company Certificate of Formation.

(a) A state trust company that has been granted a charter under Section 182.006 or a predecessor statute may amend or restate its certificate of formation for any lawful purpose, including the creation of authorized but unissued shares or participation shares in one or more classes or series.9

(b) An amendment authorizing the issuance of shares or participation shares in series must contain:

(1) the designation of each series and a statement of any variations in the preferences, limitations, and relative rights among series to the extent that the preferences, limitations, and relative rights are to be established in the certificate of formation; and

(2) a statement of any authority to be vested in the board to establish series and determine the preferences, limitations, and relative rights of each series.

(c) A limited trust association may not amend its certificate of formation to extend its period of existence for a perpetual period or for any period of years, unless the period of existence is expressly contingent on those events resulting in dissolution of the trust association under Section 183.208.

(d) Amendment or restatement of the certificate of formation of a state trust company and approval of the board and shareholders or participants must be made or obtained in accordance with the Business Organizations Code, except as otherwise provided by this subtitle or rules adopted under this subtitle. The original and one copy of the certificate of amendment or restated certificate of formation must be filed with the banking commissioner for approval. Unless the submission presents novel or unusual questions, the banking commissioner shall approve or reject the amendment or restatement not later than the 31st day after the date the banking commissioner considers the submission informationally complete and accepted for filing. The banking commissioner may require the submission of additional information as considered necessary to an informed decision to approve or reject any amendment or restatement of a certificate of formation under this section.

(e) If the banking commissioner finds that the amendment or restatement conforms to law and any conditions imposed by the banking commissioner, and any required filing fee has been paid, the banking commissioner shall:

(1) endorse the face of the original and copy with the date of approval and the word "Approved";

(2) file the original in the department´s records; and

(3) deliver a certified copy of the amendment or restatement to the state trust company.

(f) An amendment or restatement, if approved, takes effect on the date of approval, unless the amendment or restatement provides for a different effective date.

§182.102. Establishing Series of Shares or Participation Shares.

(a) If the certificate of formation expressly gives the board authority to establish series and determine the preferences, limitations, and relative rights of each series, the board may do so only on compliance with this section and any rules adopted under this chapter.

(b) A series of shares or participation shares may be established in the manner provided by the Business Organizations Code, but the shares or participation shares of the series may not be issued and sold except on compliance with Section 182.103. The state trust company shall file the original and one copy of the statement of action required by the Business Organizations Code with the banking commissioner.

(c) Unless the submission presents novel or unusual questions, the banking commissioner shall approve or reject the series not later than the 31st day after the date the banking commissioner considers the submission informationally complete and accepted for filing. The banking commissioner may require the submission of additional information as considered necessary to an informed decision.

(d) If the banking commissioner finds that the interests of the clients and creditors of the state trust company will not be adversely affected by the series, that the series otherwise conforms to law and any conditions imposed by the banking commissioner, and that any required filing fee has been paid, the banking commissioner shall:

(1) endorse the face of the original and copy of the statement with the date of approval and the word "Approved";

(2) file the original in the department´s records; and

(3) deliver a certified copy of the statement to the state trust company.

§182.103. Change in Restricted Capital.

(a) A state trust company may not reduce or increase its restricted capital through dividend, redemption, issuance of shares or participation shares, or otherwise without the prior approval of the banking commissioner, except as permitted by this section or rules adopted under this chapter.10

(b) Unless otherwise restricted by rules, prior approval is not required for an increase in restricted capital accomplished through:

(1) issuance of shares of common stock or their equivalent in participation shares for cash, or a cash contribution to surplus by shareholders or participants that does not result in issuance of additional common stock or other securities;

(2) declaration and payment of pro rata share dividends as defined by the Business Organizations Code; or

(3) adoption by the board of a resolution directing that all or part of undivided profits be transferred to restricted capital.

(1) a decrease in restricted capital caused by losses in excess of undivided profits; or

(2) a change in restricted capital resulting from accounting adjustments required by a transaction approved by the banking commissioner if the accounting adjustments are reasonably disclosed in the submitted application.

§182.104. Capital Notes or Debentures.

(a) With the prior written approval of the banking commissioner, a state trust company may at any time through action of its board, and without requiring action of its shareholders or participants, issue and sell its capital notes or debentures. The notes or debentures must be subordinate to the claims of depositors and may be subordinate to other claims, including the claims of other creditors or classes of creditors or the shareholders or participants.

(b) Capital notes or debentures may be convertible into shares or participation shares of any class or series. The issuance and sale of convertible capital notes or debentures are subject to satisfaction of preemptive rights, if any, to the extent provided by law.

(c) Without the prior written approval of the banking commissioner, a state trust company may not pay interest due or principal repayable on outstanding capital notes or debentures when the state trust company is in hazardous condition or insolvent, as determined by the banking commissioner, or to the extent that payment will cause the state trust company to be in hazardous condition or insolvent.

(d) The amount of any outstanding capital notes or debentures that meet the requirements of this section and that are subordinated to unsecured creditors of the state trust company may be included in equity capital of the state trust company for purposes of determining hazardous condition or insolvency, and for such other purposes provided by rules adopted under this subtitle.

§182.105. Board Designation of Certified Surplus.

Periodically the board may vote to designate and record in its minutes the amount of certified surplus. Except to absorb losses in excess of undivided profits and uncertified surplus, certified surplus may not be reduced without the prior written approval of the banking commissioner.

Subchapter C. State Trust Company Offices

§182.201. Conduct of Trust Business.

A state trust company may engage in the trust business at its home office and at other locations as permitted by this subchapter.

§182.202. Home Office.

(a) Each state trust company must have and continuously maintain in this state a home office. The home office must be a location at which the state trust company does business and keeps its corporate books and records. At least one executive officer must maintain an office at the home office.

(b) [Repealed eff. Sept. 1, 2007, by Acts 2007, 80th Leg., ch. 244, §3.]

(c) A state trust company may change its home office to any location in this state, if the location that is the home office before the change remains an office of the state trust company at which the state trust company does business. To change the location of its home office, the state trust company must file a written notice with the banking commissioner setting forth the name of the state trust company, the street address of its home office before the change, the street address to which the home office is to be changed, and a copy of the resolution adopted by the board authorizing the change. The change of home office takes effect on the 31st day after the date the banking commissioner receives the notice.11

(d) A relocation of a state trust company´s home office may not be made, and another action that would effect an abandonment of the state trust company´s initial home office may not be taken, without the prior written approval of the banking commissioner. The state trust company must establish to the satisfaction of the banking commissioner that the abandonment is consistent with the original determination of public convenience and advantage for the establishment of a state trust company at that location.

§182.203. Additional Offices.

(a) A state trust company may establish and maintain additional offices. To establish an additional office, the state trust company must file a written notice with the banking commissioner setting forth the name of the state trust company, the street address of the proposed additional office, a description of the activities proposed to be conducted at the additional office, and a copy of the resolution adopted by the board authorizing the additional office.12

(b) A state trust company may not commence business at the additional office before the 31st day after the date the banking commissioner receives the notice, unless the banking commissioner specifies an earlier or later date. The banking commissioner may specify a later date on a determination that the written notice raises issues that require additional information or additional time for analysis. If a later date is specified, the state trust company may establish the additional office only on prior written approval by the banking commissioner. The banking commissioner may deny permission to establish an additional office of the state trust company if the banking commissioner has a significant supervisory or regulatory concern regarding the proposed additional office, the applicant, or an affiliate.

Subchapter D. Merger

§182.301. Merger Authority.

(a) Two or more trust institutions, corporations, or other entities with the authority to participate in a merger, at least one of which is a state trust company, may adopt and implement a plan of merger in accordance with this section. The merger may not be made without the prior written approval of the banking commissioner if any surviving, new, or acquiring entity that is a party to the merger or created by the terms of the merger is a state trust company or is not a trust institution .13

(b) Implementation of the plan of merger by the parties and approval of the board, shareholders, participants, or owners of the parties must be made or obtained as provided by the Business Organizations Code as if the state trust company were a filing entity and all other parties to the merger were foreign entities, except as otherwise provided by rules adopted under this chapter.

§182.302. Merger Application; Grounds for Approval.

(a) To apply for approval of a merger, the parties must submit the original certificate of merger, a number of copies of the certificate of merger equal to the number of surviving, new, and acquiring entities, and an application in the form required by the banking commissioner. The banking commissioner may require the submission of additional information as considered necessary to an informed decision.14

(b) The banking commissioner shall investigate the condition of the merging parties.

(1) each resulting state trust company:

(A) has complied with the statutes and rules relating to the organization of a state trust company; and

(B) will be solvent and have adequate capitalization for its business and location;

(2) all obligations and liabilities of each trust company that is a party to the merger have been properly discharged or otherwise lawfully assumed or retained by a trust institution or other fiduciary;

(3) each surviving, new, or acquiring person that is not authorized to engage in the trust business will not engage in the trust business and has complied with the laws of this state; and

(4) all conditions imposed by the banking commissioner have been satisfied or otherwise resolved.

§182.303. Approval of Banking Commissioner.

(a) If the banking commissioner approves the merger and finds that all required filing fees and investigative costs have been paid, the banking commissioner shall:

(1) endorse the face of the original and each copy of the certificate of merger with the date of approval and the word "Approved";

(2) file the original in the department´s records; and

(3) deliver a certified copy of the certificate of merger to each surviving, new, or acquiring entity.

(b) A merger is effective on the date of approval, unless the merger agreement provides and the banking commissioner consents to a different effective date.

§182.304. Rights of Dissenters to Merger.

A shareholder, participant, or participant-transferee may dissent from the merger to the extent and by following the procedure provided by the Business Organizations Code or rules adopted under this subtitle.

Subchapter E. Purchase or Sale of Assets

§182.401. Authority to Purchase Assets.

(a) A state trust company may purchase assets from another trust institution, including the right to control accounts established with the trust institution, or assets from another seller, except that the prior written approval of the banking commissioner is required if the purchase price exceeds an amount equal to three times the sum of the trust company's equity capital less intangible assets. The finance commission by rule may require a state trust company to obtain the prior written approval of the banking commissioner for a transaction not otherwise subject to approval that involves potentially substantial risks to the safety and soundness of the purchasing trust company.

(b) Except as otherwise expressly provided by this section or another statute, the purchase of all or part of the assets of the selling entity does not make the purchasing state trust company responsible for any liability or obligation of the selling entity that the purchasing state trust company does not expressly assume.

(c) If prior approval of the banking commissioner is required under this section, an application in the form required by the banking commissioner must be filed with the banking commissioner. The banking commissioner shall investigate the condition of the purchaser and seller and may require the submission of additional information as considered necessary to make an informed decision.

(d) The banking commissioner shall approve the application to purchase if:

(1) the purchasing state trust company:

(A) has complied with all applicable statutes and rules; and

(B) will be solvent and have sufficient capitalization for its business and location;

(2) all fiduciary obligations and liabilities of each trust institution that is a party to the purchase or sale of assets have been properly discharged or otherwise lawfully assumed or retained by a trust institution or other fiduciary;

(3) all conditions imposed by the banking commissioner have been satisfied or otherwise resolved; and

(4) all fees and costs have been paid.

(e) A purchase subject to prior approval is effective on the date of approval unless the purchase agreement provides for and the banking commissioner consents to a different effective date.

(f) If the purchase transaction includes all or substantially all of the assets of another trust institution or other fiduciary, the acquiring state trust company shall succeed by operation of law to all of the rights, privileges, and fiduciary obligations of the selling trust institution or other fiduciary under each account included in the assets acquired.

§182.402. Authority to Act as Disbursing Agent.

(a) The purchasing state trust company may hold the purchase price and any additional funds delivered to it by the selling institution in trust for the selling institution and may act as agent of the selling institution in disbursing those funds in trust by paying the creditors of the selling institution.

(b) If the purchasing state trust company acts under written contract of agency approved by the banking commissioner that specifically names each creditor and the amount to be paid each, and if the agency is limited to the purely ministerial act of paying creditors the amounts due them as determined by the selling institution and reflected in the contract of agency and does not involve discretionary duties or authority other than the identification of the creditors named, the purchasing trust company:

(1) may rely on the contract of agency and the instructions included in it; and

(2) is not responsible for:

(A) any error made by the selling institution in determining its liabilities and creditors to whom the liabilities are due or the amounts due the creditors; or

(B) any preference that results from the payments made under the contract of agency and the instructions included in it.

§182.403. Liquidation of Selling Institution.

If the selling institution is at any time after the sale of assets voluntarily or involuntarily closed for liquidation by a state or federal regulatory agency, the purchasing state trust company shall pay to the receiver of the selling institution the balance of the money held by it in trust for the selling institution and not yet paid to the creditors of the selling institution. Without further action the purchasing state trust company is discharged of all responsibilities to the selling institution, its receiver, or its creditors, shareholders, participants, or participant-transferees.

§182.404. Payment to Creditors.

The purchasing state trust company may pay a creditor of the selling institution the amount to be paid the creditor under the terms of the contract of agency by opening an agency account in the name of the creditor, crediting the account with the amount to be paid the creditor under the terms of the agency contract, and mailing or personally delivering a duplicate ticket evidencing the credit to the creditor at the creditor´s address shown in the records of the selling institution. The relationship between the purchasing state trust company and the creditor is that of agent to creditor only to the extent of the credit reflected by the ticket.

§182.405. Sale of Assets.

(a) A state trust company may sell all or any portion of its assets to another trust institution or other buyer, except that the prior written approval of the banking commissioner is required if the sales price exceeds an amount equal to three times the sum of the trust company's equity capital less intangible assets. The finance commission by rule may require a state trust company to obtain the prior written approval of the banking commissioner for a transaction not otherwise subject to approval that involves potentially substantial risks to the safety and soundness of the selling trust company.

(b) If the prior approval of the banking commissioner for a sale of assets is not required under Subsection (a) and the sale involves the disposition of an established location of the state trust company, the state trust company must provide written notice of the transaction to the banking commissioner at least 30 days before the expected closing date of the transaction

(c) The board of a state trust company, with the banking commissioner's approval, may cause the state trust company to sell all or substantially all of its assets, including the right to control accounts established with the state trust company, without shareholder or participant approval if:

(1) the banking commissioner finds that the interests of the state trust company's clients, depositors, and creditors are jeopardized because of the hazardous condition of the state trust company and that the sale is in their best interest; and

(2) the Federal Deposit Insurance Corporation or its successor approves the transaction, if the deposits of the state trust company are insured.

(d) A sale under Subsection (c) must include an assumption and promise by the buyer to pay or otherwise discharge:

(1) all of a state trust company's liabilities to clients and depositors;

(2) all of a state trust company's liabilities for salaries of the state trust company's employees incurred before the date of the sale;

(3) obligations incurred by the banking commissioner arising out of the supervision or sale of the state trust company; and

(4) fees and assessments due the department.

(e) This section does not affect the banking commissioner´s right to take action under another law. The sale by a state trust company of all or substantially all of its assets with shareholder or participant approval is considered a voluntary dissolution and liquidation and is governed by Subchapter B, Chapter 186.

(f) Each buyer in a transaction described by Subsection (c) that is a trust institution or other fiduciary shall succeed by operation of law to all of the rights, privileges, and fiduciary obligations of the selling state trust company under each account included in the assets acquired.

Subchapter F. Exit of State Trust Company or Entry of Another Trust Institution

§182.501. Merger or Conversion of State Trust Company into Another Trust Institution Exercising Fiduciary Powers.

(a) Subject to Chapter 187, a state trust company may act as necessary and to the extent permitted by the laws of the United States, this state, another state, or another country to merge or convert into another form of trust institution.

(b) The merger or conversion must be made and approval of the state trust company's board, shareholders, or participants must be obtained in accordance with the Business Organizations Code as if the state trust company were a filing entity and all other parties to the transaction, if any, were foreign entities, except as may be otherwise provided by rule. For purposes of this subsection, a conversion is considered a merger into the successor trust institution.

(c) The state trust company does not cease to be a state trust company subject to the supervision of the banking commissioner unless:

(1) the banking commissioner has been given written notice of the intention to merge or convert before the 31st day before the date of the proposed transaction;15

(2) the state trust company has filed with the banking commissioner:

(A) a copy of the application filed with the successor regulatory authority, including a copy of each contract evidencing or implementing the merger or conversion, or other documents sufficient to show compliance with applicable law; and

(B) a certified copy of all minutes of board meetings and shareholder or participant meetings at which action was taken regarding the merger or conversion;

(3) the banking commissioner determines that:

(A) all accounts and liabilities of the state trust company are fully discharged, assumed, or otherwise retained by the successor trust institution;

(B) any conditions imposed by the banking commissioner for the protection of clients and creditors have been met or otherwise resolved; and

(4) the state trust company has received a certificate of authority to do business as the successor trust institution.

§182.502. Conversion of Trust Institution into State Trust Company.

(a) A trust institution may apply to the banking commissioner for conversion into a state trust company on a form prescribed by the banking commissioner and accompanied by any required fee if the trust institution follows the procedures prescribed by the laws of the United States, this state, another state, or another country governing the exit of the trust institution for the purpose of conversion into a state trust company from the regulatory system applicable before the conversion.20 A trust association or limited trust association may convert its organizational form under this section.

(b) A trust institution applying to convert into a state trust company may receive a certificate of authority to do business as a state trust company if the banking commissioner finds that:

(1) the trust institution is not engaging in a pattern or practice of unsafe and unsound fiduciary or banking practices;

(2) the trust institution has adequate capitalization for a state trust company to act as a fiduciary at the same locations as the trust institution is acting as a fiduciary before the conversion;

(3) the trust institution can be expected to operate profitably after the conversion;

(4) the officers and directors of the trust institution as a group have sufficient fiduciary experience, ability, standing, competence, trustworthiness, and integrity to justify a belief that the trust institution will operate as a state trust company in compliance with law; and

(5) each principal shareholder has sufficient experience, ability, standing, competence, trustworthiness, and integrity to justify a belief that the trust institution will be free from improper or unlawful influence or interference with respect to the trust institution´s operation as a state trust company in compliance with law.

(1) request additional information considered necessary to make an informed decision under this section;

(2) perform an examination of the converting trust institution at the expense of the converting trust institution; and

(3) require that examination fees be paid before a certificate of authority is issued.

(d) In connection with the application, the converting trust institution must:

(1) submit a statement of the law governing the exit of the trust institution from the regulatory system applicable before the conversion and the terms of the transition into a state trust company; and

(2) demonstrate that all applicable law has been fully satisfied.

CHAPTER 183. OWNERSHIP AND MANAGEMENT OF STATE TRUST COMPANY (TITLE 3; SUBTITLE F)

Subchapter A. Transfer of Ownership Interest

§183.001. Acquisition of Control.

(a) Except as expressly permitted by this subtitle, without the prior written approval of the banking commissioner a person may not directly or indirectly acquire a legal or beneficial interest in voting securities of a state trust company or a corporation or other entity owning voting securities of a state trust company if, after the acquisition, the person would control the state trust company.

(b) For purposes of this subchapter and except as otherwise provided by rules adopted under this subtitle, the principal shareholder or principal participant of a state trust company that directly or indirectly owns or has the power to vote a greater percentage of voting securities of the state trust company than any other shareholder or participant is considered to control the state trust company.

(c) This subchapter does not prohibit a person from negotiating to acquire, but not acquiring, control of a state trust company or a person that controls a state trust company.

(d) This section does not apply to:

(1) the acquisition of securities in connection with the exercise of a security interest or otherwise in full or partial satisfaction of a debt previously contracted for in good faith if the acquiring person files written notice of acquisition with the banking commissioner before the person votes the securities acquired;

(2) the acquisition of voting securities in any class or series by a controlling person who has previously complied with and received approval under this subchapter or who was identified as a controlling person in a prior application filed with and approved by the banking commissioner;

(3) an acquisition or transfer by operation of law, will, or intestate succession if the acquiring person files written notice of acquisition with the banking commissioner before the person votes the securities acquired; or

(4) a transaction exempted by the banking commissioner or by rules adopted under this subtitle because the transaction is not within the purposes of this subchapter or the regulation of which is not necessary or appropriate to achieve the objectives of this subchapter.

§183.002. Application Regarding Acquisition of Control.

(a) The transferee in an acquisition of control of a state trust company or of a person that controls a state trust company must file an application for approval of the acquisition.1 The application must:

(1) be under oath and on a form prescribed by the banking commissioner;

(2) contain all information that:

(A) is required by rules adopted under this subtitle; or

(B) the banking commissioner requires in a particular application as necessary to an informed decision to approve or reject the acquisition; and

(3) be accompanied by any filing fee required by statute or rule.

(b) If a person proposing to acquire voting securities in a transaction subject to this section includes a group of persons acting in concert, the information required by the banking commissioner may be required of each member of the group.

(c) Rules adopted under this subtitle may specify the confidential or nonconfidential character of information obtained by the banking commissioner under this section. In the absence of rules, information obtained by the banking commissioner under this section is confidential and may not be disclosed by the banking commissioner or any employee of the department except as provided by Subchapter D, Chapter 181.2

(d) The applicant shall publish notice of the application, its date of filing, the identity of each applicant, and, if the applicant includes a group, the identity of each group member. The notice must be published in the form and frequency specified by the banking commissioner and in a newspaper of general circulation in the county where the state trust company´s home office is located, or in another publication or location as directed by the banking commissioner.

(e) The applicant may defer publication of the notice until not later than the 34th day after the date the application is filed if:

(1) the application is filed in contemplation of a public tender offer subject to 15 U.S.C. Section 78n(d)(1);

(2) the applicant requests confidential treatment and represents that a public announcement of the tender offer and the filing of appropriate forms with the Securities and Exchange Commission or the appropriate federal banking agency, as applicable, will occur within the period of deferral; and

(3) the banking commissioner determines that the public interest will not be harmed by the requested confidential treatment.

(f) The banking commissioner may waive the requirement that a notice be published or permit delayed publication on a determination that waiver or delay is in the public interest. If publication of notice is waived under this subsection, the information that would be contained in a published notice becomes public information under Chapter 552, Government Code, on the 35th day after the date the application is filed.

§183.003. Hearing and Decision on Acquisition of Control.

(a) Not later than the 60th day after the date the notice is published, the banking commissioner shall approve the application or set the application for hearing. If the banking commissioner sets a hearing, the department shall participate as the opposing party and the banking commissioner shall conduct a hearing and one or more prehearing conferences and opportunities for discovery as the banking commissioner considers advisable and consistent with governing statutes and rules. A hearing held under this section is confidential and closed to the public.3

(b) Based on the record, the banking commissioner may issue an order denying an application if:

(1) the acquisition would substantially lessen competition, be in restraint of trade, result in a monopoly, or be in furtherance of a combination or conspiracy to monopolize or attempt to monopolize the trust industry in any part of this state, unless:

(A) the anticompetitive effects of the acquisition are clearly outweighed in the public interest by the probable effect of acquisition in meeting the convenience and needs of the community to be served; and

(B) the acquisition is not in violation of the law of this state or the United States;

(2) the financial condition of the transferee, or any member of a group comprising the transferee, might jeopardize the financial stability of the state trust company being acquired;

(3) plans or proposals to operate, liquidate, or sell the state trust company or its assets are not in the best interest of the state trust company;

(4) the experience, ability, standing, competence, trustworthiness, and integrity of the transferee, or any member of a group comprising the transferee, are insufficient to justify a belief that the state trust company will be free from improper or unlawful influence or interference with respect to the state trust company´s operation in compliance with law;

(5) the state trust company will not be solvent, have adequate capitalization, or be in compliance with the laws of this state after the acquisition;

(6) the transferee has failed to furnish all information pertinent to the application reasonably required by the banking commissioner; or

(7) the transferee is not acting in good faith.

(c) If the banking commissioner approves the application, the transaction may be consummated. If the approval is conditioned on a written commitment from the transferee offered to and accepted by the banking commissioner, the commitment is:

(1) enforceable against the state trust company and the transferee; and

(2) considered for all purposes an agreement under this subtitle.

§183.004. Appeal from Adverse Decision.

(a) If a hearing has been held, the banking commissioner has entered an order denying the application, and the order has become final, the transferee may appeal the final order by filing a petition for judicial review.

(b) The filing of an appeal under this section does not stay the order of the banking commissioner.

§183.005. Objection to Other Transfer.

This subchapter does not prevent the banking commissioner from investigating, commenting on, or seeking to enjoin or set aside a transfer of voting securities that evidence a direct or indirect interest in a state trust company, regardless of whether the transfer is governed by this subchapter, if the banking commissioner considers the transfer to be against the public interest.

§183.006. Civil Enforcement; Criminal Penalty.

(a) If the banking commissioner believes that a person has violated or is about to violate this subchapter or a rule or order of the banking commissioner relating to this subchapter, the attorney general on behalf of the banking commissioner may apply to a district court in Travis County for an order enjoining the violation and for other equitable relief the nature of the case requires.

(b) A person who knowingly fails or refuses to file the application required by Section 183.002 commits an offense. An offense under this subsection is a Class A misdemeanor.

Subchapter B. Board and Officers

§183.101. Voting Securities Held by Trust Company.

(a) Voting securities of a state trust company held by the state trust company in a fiduciary capacity under a will or trust, whether registered in its own name or in the name of its nominee, may not be voted in the election of directors or managers or on a matter affecting the compensation of directors, managers, officers, or employees of the state trust company in that capacity, unless:

(1) under the terms of the will or trust, the manner in which the voting securities are to be voted may be determined by a donor or beneficiary of the will or trust and the donor or beneficiary actually makes the determination in the matter at issue;

(2) the terms of the will or trust expressly direct the manner in which the securities must be voted to the extent that discretion is not vested in the state trust company as fiduciary; or

(3) the securities are voted solely by a cofiduciary that is not an affiliate of the state trust company, as if the cofiduciary were the sole fiduciary.

(b) Voting securities of a state trust company that cannot be voted under this section are considered to be authorized but unissued for purposes of determining the procedures for and results of the affected vote.

§183.102. Bylaws.

Except as provided by Section 183.207, each state trust company shall adopt bylaws and may amend its bylaws from time to time for the purposes and in accordance with the procedures set forth in the Business Organizations Code.

§183.103. Board of Directors, Managers, or Managing Participants.

(a) The board of a state trust company must consist of not fewer than five or more than 25 directors, managers, or managing participants, the majority of whom must be residents of this state. Except for a limited trust association in which management has been retained by its participants, the principal executive officer of the state trust company is a member of the board. The principal executive officer acting in the capacity of board member is the board´s presiding officer unless the board elects a different presiding officer to perform the duties as designated by the board.

(b) Unless the banking commissioner consents otherwise in writing, a person may not serve as director, manager, or managing participant of a state trust company if:

(1) the state trust company incurs an unreimbursed loss attributable to a charged-off obligation of or holds a judgment against:

(a) the person; or

(B) an entity that was controlled by the person at the time of funding and at the time of default on the loan that gave rise to the judgment or charged-off obligation;

(2) the person is the subject of an order described by Section 185.007(a);

(3) the person has been convicted of a felony; or

(4) the person has violated, with respect to a trust under which the state trust company has fiduciary responsibility, Section 113.052 or 113.053(a), Property Code, relating to loan of trust funds and purchase or sale of trust property by the trustee, and the violation has not been corrected.

(c) If a state trust company other than a limited trust association operated by managing participants does not elect directors or managers before the 61st day after the date of its regular annual meeting, the banking commissioner may appoint a conservator under Chapter 185 to operate the state trust company and elect directors or managers, as appropriate. If the conservator is unable to locate or elect persons willing and able to serve as directors or managers, the banking commissioner may close the state trust company for liquidation.

(d) A vacancy on the board that reduces the number of directors, managers, or managing participants to fewer than five must be filled not later than the 30th day after the date the vacancy occurs. A limited trust association with fewer than five managing participants must add one or more new participants or elect a board of managers of not fewer than five persons to resolve the vacancy. After the 30th day after the date the vacancy occurs, the banking commissioner may appoint a conservator under Chapter 185 to operate the state trust company and elect a board of not fewer than five persons to resolve the vacancy. If the conservator is unable to locate or elect five persons willing and able to serve as directors or managers, the banking commissioner may close the state trust company for liquidation.

(e) Before each term to which a person is elected to serve as a director or manager of a state trust company, or annually for a person who is a managing participant, the person shall submit an affidavit for filing in the minutes of the state trust company stating that the person, to the extent applicable:

(1) accepts the position and is not disqualified from serving in the position;

(2) will not violate or knowingly permit an officer, director, manager, managing participant, or employee of the state trust company to violate any law applicable to the conduct of business of the trust company; and

(3) will diligently perform the duties of the position.

§183.104. Advisory Director or Advisory Manager.

(a) An advisory director or advisory manager is not considered to be a director if the advisory director or advisory manager:

(1) is not elected by the shareholders or participants of the state trust company;

(2) does not vote on matters before the board or a committee of the board;

(3) is not counted for purposes of determining a quorum of the board or committee; and

(4) provides solely general policy advice to the board.

(b) A state trust company may not disclose to an advisory director or advisory manager confidential information pertaining to the state trust company or the company's clients unless:

(1) the board adopts a resolution that designates the advisory director or advisory manager as a person who is officially connected to the trust company and that describes the purpose for disclosure of the information, which must be a reasonable business purpose; and

(2) the disclosure is made under a written confidentiality agreement between the state trust company and the advisory director or advisory manager.

§183.105. Required Quarterly Board Meeting.

(a) The board of a state trust company shall hold at least one regular meeting each quarter.

(b) At each regular meeting the board shall review and approve the minutes of the preceding meeting and review the operations, activities, and financial condition of the state trust company. The board may designate committees from among its members to perform those duties and approve or disapprove the committees´ reports at each regular meeting.

§183.106. Officers.

(a) The board shall annually appoint the officers of the state trust company, who serve at the will of the board. Unless the banking commissioner consents otherwise in writing, a person may not serve as an officer of a state trust company if:

(1) the person is the subject of an order described by Section 185.007(a);

(2) the person has been convicted of a felony; or

(3) the person has violated, with respect to a trust under which the state trust company has fiduciary responsibility, Section 113.052 or 113.053(a), Property Code, relating to loan of trust funds and purchase or sale of trust property by the trustee, and the violation has not been corrected.

(b) The state trust company must have a principal executive officer primarily responsible for the execution of board policies and operation of the state trust company and an officer responsible for the maintenance and storage of all corporate books and records of the state trust company5 and for required attestation of signatures. Those positions may not be held by the same person.

§183.107. Limitation on Action of Officer or Employee in Relation to Asset or Liability.

Unless expressly authorized by a resolution of the board recorded in its minutes, an officer or employee may not create or dispose of a state trust company asset or create or incur a liability on behalf of the state trust company.

§183.108. Certain Criminal Offenses.

(a) An officer, director, manager, managing participant, employee, shareholder, or participant of a state trust company commits an offense if the person knowingly:

(1) conceals information or removes, destroys, or conceals a book or record of the state trust company for the purpose of concealing information from the banking commissioner or an agent of the banking commissioner; or

(2) for the purpose of concealing, removes or destroys any book or record of the state trust company that is material to a pending or anticipated legal or administrative proceeding.

(b) An officer, director, manager, managing participant, or employee of a state trust company commits an offense if the person knowingly makes a false entry in a book, record, report, or statement of the state trust company.

§183.109. Transactions with Management and Affiliates.

(a) Without the prior approval of a disinterested majority of the board recorded in the minutes, or if a disinterested majority cannot be obtained, the prior written approval of the banking commissioner,6 a state trust company may not directly or indirectly:

(1) sell or lease an asset of the state trust company to an officer, director, manager, managing participant, or principal shareholder or participant of the state trust company or an affiliate of the state trust company;

(2) purchase or lease an asset in which an officer, director, manager, managing participant, or principal shareholder or participant of the state trust company or an affiliate of the state trust company has an interest; or

(3) subject to Section 184.201, extend credit to an officer, director, manager, managing participant, or principal shareholder or participant of the state trust company or an affiliate of the state trust company.

(b) Notwithstanding Subsection (a), a lease transaction described in Subsection (a)(2) involving real property may not be consummated, renewed, or extended without the prior written approval of the banking commissioner. For purposes of this subsection only, an affiliate of a state trust company does not include a subsidiary of the state trust company.

(c) Subject to Section 184.201, a state trust company may not directly or indirectly extend credit to an employee, officer, director, manager, managing participant, or principal shareholder or participant of the state trust company or to an affiliate of the state trust company, unless:

(1) the extension of credit is made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions by the state trust company with persons who are not employees, officers, directors, managers, managing participants, principal shareholders, participants, or affiliates of the state trust company;

(2) the extension of credit does not involve more than the normal risk of repayment or present other unfavorable features; and

(3) the state trust company follows credit underwriting procedures that are not less stringent than those applicable to comparable transactions by the state trust company with persons who are not employees, officers, directors, managers, managing participants, principal shareholders, participants, or affiliates of the state trust company.

(d) An officer, director, manager, or managing participant of a state trust company who knowingly participates in or permits a violation of this section commits an offense. An offense under this subsection is a felony of the third degree.

(e) The finance commission may adopt rules to administer and carry out this section, including rules to establish limits, requirements, or exemptions other than those specified by this section for particular categories of transactions.

§183.110. Fiduciary Responsibility.

The board of a state trust company is responsible for the proper exercise of fiduciary powers by the state trust company and each matter pertinent to the exercise of fiduciary powers, including:

(1) the determination of policies;

(2) the investment and disposition of property held in a fiduciary capacity; and

(3) the direction and review of the actions of each officer, employee, and committee used by the state trust company in the exercise of its fiduciary powers.

§183.111. Recordkeeping.

A state trust company shall keep its fiduciary records separate and distinct from other records of the state trust company in compliance with applicable rules adopted under this subtitle. The fiduciary records must contain all appropriate material information relative to each account.

§183.112. Bonding Requirements.

(a) The board of a state trust company shall require a bond for the protection and indemnity of clients, in reasonable amounts established by rules adopted under this subtitle, against dishonesty, fraud, defalcation, forgery, theft, and other similar insurable losses.7 The bond must be with a corporate insurance or surety company:

(1) authorized to do business in this state; or

(2) acceptable to the banking commissioner and otherwise lawfully permitted to issue the coverage against those losses in this state.

(b) Except as otherwise provided by rule, a bond is required to cover each director, manager, managing participant, officer, and employee of a state trust company without regard to whether the person receives salary or other compensation.

(c) A state trust company may apply to the banking commissioner for permission to eliminate the bonding requirement of this section for a particular individual. The banking commissioner shall approve the application if the banking commissioner finds that the bonding requirement is unnecessary or burdensome. Unless the application presents novel or unusual questions, the banking commissioner shall approve the application or set the application for hearing not later than the 61st day after the date the banking commissioner considers the application complete and accepted for filing.

§183.113. Reports of Apparent Crime.

(a) A state trust company that is the victim of a robbery, has a shortage of corporate or fiduciary funds in excess of $5,000, or is the victim of an apparent or suspected misapplication of its corporate or fiduciary funds or property in any amount by a director, manager, managing participant, officer, or employee shall report the robbery, shortage, or apparent or suspected misapplication of funds or property to the banking commissioner within 48 hours after the time it is discovered. The initial report may be oral if the report is promptly confirmed in writing. The state trust company or a director, manager, managing participant, officer, employee, or agent is not subject to liability for defamation or another charge resulting from information supplied in the report.

(b) A report filed with the banking commissioner under this section may be a copy of a written report filed with an appropriate federal agency.

Subchapter C. Limited Trust Association

§183.201. Liability of Participants and Managers.

(a) Except as provided by Subsection (b), a participant, participant-transferee, or manager of a limited trust association is not liable for a debt, obligation, or liability of the limited trust association, including a debt, obligation, or liability under a judgment, decree, or order of court. A participant, other than a full liability participant, or a manager of a limited trust association is not a proper party to a proceeding by or against a limited trust association unless the object of the proceeding is to enforce the participant´s or manager´s right against or liability to a limited trust association.

(b) A full liability participant of a limited trust association is liable under a judgment, decree, or order of court for a debt, obligation, or liability of the limited trust association that accrued during the participation of the full liability participant in the limited trust association and before the full liability participant or a successor in interest filed with the banking commissioner a notice of withdrawal as a full liability participant from the limited trust association. The filed notice of withdrawal is a public record.

§183.202. Filing of Notice of Full Liability.

(a) A limited trust association shall file with the banking commissioner a copy of any participation agreement by which a participant of the limited trust association agrees to become a full liability participant and the name and address of each full liability participant. Only the portion of the filed copy containing the designation of each full liability participant is a public record.

(b) The banking commissioner may require a complete copy of the participation agreement to be filed with the department, regardless of whether a state trust company has a full liability participant, except that the provisions of the participation agreement other than those by which a participant of the limited trust association agrees to become a full liability participant are confidential and subject to release only as provided by Subchapter D, Chapter 181.

§183.203. Contracting for Debt or Obligation.

Except as provided by this section or the certificate of formation of the limited trust association, a debt, liability, or other obligation may be contracted for or incurred on behalf of a limited trust association only by:

(1) a majority of the managers, if management of the limited trust association has been vested in a board of managers;

(2) a majority of the managing participants; or

(3) an officer or other agent vested with actual or apparent authority to contract for or incur the debt, liability, or other obligation.

§183.204. Management of Limited Trust Association.

(a) Management of a limited trust association is vested in the participants in proportion to each participant´s contribution to capital, as adjusted periodically to properly reflect any additional contribution. The certificate of formation may provide that management of a limited trust association is vested in a board of managers to be elected annually by the participants as prescribed by the bylaws or the participation agreement.

(b) Participants of a limited trust association may not retain management and must elect a board of managers if:

(1) any participant is disqualified from serving as a managing participant under Section 183.103;

(2) the limited trust association has fewer than five or more than 25 participants; or

(3) any participant has been removed by the banking commissioner under Subchapter A, Chapter 185.

(c) The certificate of formation, bylaws, and participation agreement of a limited trust association may use the term "director" instead of "manager" and the term "board" instead of "board of managers."

§183.205. Withdrawal or Reduction of Participant´s Contribution to Capital.

(a) Except as otherwise provided by this chapter, a participant may not receive from a limited trust association any part of the participant´s contribution to capital unless:

(1) all liabilities of the limited trust association, except liabilities to participants on account of contribution to capital, have been paid;

(2) after the withdrawal or reduction, sufficient property of the limited trust association will remain to pay all liabilities of the limited trust association, except liabilities to participants on account of contribution to capital;

(3) all participants consent; or

(4) the certificate of formation is canceled or amended to set out the withdrawal or reduction.

(b) A participant may demand the return of the participant´s contribution to capital on the dissolution of the association and the failure of the full liability participants to exercise the right to carry on the business of the limited trust association as provided by Section 183.208.

(c) A participant may demand the return of the participant´s contribution to capital only in cash unless a different form of return of the contribution is allowed by the certificate of formation or by the unanimous consent of all participants.

§183.206. Interest in Limited Trust Association; Transferability of Interest.

(a) The interest of a participant or participant-transferee in a limited trust association is the personal property of the participant or the participant-transferee and may be transferred as provided by the bylaws or the participation agreement.

(b) A transferee of a participant´s interest has the status of a participant-transferee and does not by the transfer become a participant or obtain a right to participate in the management of the limited trust association.

(c) A participant-transferee is entitled to receive only a share of profits, return of contribution, or other distributive benefit in respect to the interest transferred to which the participant who transferred the interest would have been entitled.

(d) A participant-transferee may become a participant only as provided by the bylaws or the participation agreement.

(e) A limited trust association may add additional participants in the same manner as participant-transferees after payment in full of the capital contribution to the limited trust association payable for the issuance of additional participation interests.

§183.207. Bylaws of Limited Trust Association.

(a) A limited trust association in which management is retained by the participants is not required to adopt bylaws if the provisions required by law to be contained in the bylaws are contained in the certificate of formation or the participation agreement.

(b) If a limited trust association has adopted bylaws that designate each full liability participant, the limited trust association shall file a copy of the bylaws with the banking commissioner. Only the portion of the bylaws designating each full liability participant is a public record.

§183.208. Dissolution.

(a) A limited trust association organized under this chapter is dissolved on:

(1) the expiration of the period fixed for the duration of the limited trust association;

(2) a vote to dissolve or the execution of a written consent to dissolve by all full liability participants, if any, and a sufficient number of other participants that, combined with all full liability participants, hold at least two-thirds of the participation shares in each class in the association, or a greater fraction as provided by the certificate of formation;

(3) except as provided by the certificate of formation, the death, insanity, expulsion, bankruptcy, retirement, or resignation of a participant unless a majority in interest of all remaining participants elect in writing not later than the 90th day after the date of the event to continue the business of the association; or

(4) the occurrence of an event of dissolution specified in the certificate of formation.

(b) A dissolution under this section is considered to be the initiation of a voluntary dissolution under Subchapter B, Chapter 186.

(c) An event of dissolution described by Subsection (a)(3) does not cancel or revoke a contract to which the limited trust association is a party, including a trust indenture or agreement or voluntary dissolution under Subchapter B, Chapter 186, until the period for the remaining participants to continue the business of the limited trust association has expired without the remaining participants having completed the necessary action to continue the business of the limited trust association.

§183.209. Allocation of Profits and Losses.

The profits and losses of a limited trust association may be allocated among the participants and among classes of participants as provided by the participation agreement. Without the prior written approval of the banking commissioner to use a different allocation method, the profits and losses must be allocated according to the relative interests of the participants as reflected in the certificate of formation and related documents filed with and approved by the banking commissioner.

§183.210. Distributions.

Subject to Section 182.103, distributions of cash or other assets of a limited trust association may be made to the participants as provided by the participation agreement. Without the prior written approval of the banking commissioner to use a different distribution method, distributions must be made to the participants according to the relative interests of the participants as reflected in the certificate of formation and related documents filed with and approved by the banking commissioner.

§183.211. Application of Other Provisions to Limited Trust Associations.

For purposes of applying the provisions of this subtitle other than this subchapter to a limited trust association, as the context requires:

(1) a manager and the board of managers are considered to be a director and the board of directors;

(2) if there is not a board of managers, a participant is considered to be a director and all of the participants are considered to be the board of directors;

(3) a participant or participant-transferee is considered to be a shareholder;

(4) a participation share is considered to be a share of stock; and

(5) a distribution is considered to be a dividend.

CHAPTER 184. INVESTMENTS, LOANS, AND DEPOSITS (TITLE 3; SUBTITLE F)

Subchapter A. Acquisition and Ownership of Trust Company and Facilities and Other Real Property

§184.001. Definition.

In this subchapter, "state trust company facility" means real property, including an improvement, that a state trust company owns or leases, to the extent the lease or the leasehold improvement is capitalized, for the purpose of:

(1) providing space for state trust company employees to perform their duties and for state trust company employees and customers to park;

(2) conducting trust business, including meeting the reasonable needs and convenience of the public and the state trust company´s clients, computer operations, document and other item processing, maintenance, and record retention and storage;

(3) holding, improving, and occupying as an incident to future expansion of the state trust company´s facilities; or

(4) conducting another activity authorized by rules adopted under this subtitle.

§184.002. Investment in State Trust Company Facilities.

(a) Without the prior written approval of the banking commissioner, a state trust company may not directly or indirectly invest an amount in excess of the company's restricted capital in state trust company facilities, furniture, fixtures, and equipment. Except as otherwise provided by rules adopted under this subtitle, in computing the limitation provided by this subsection a state trust company:

(1) shall include:

(A) its direct investment in state trust company facilities;

(B) an investment in equity or investment securities of a company holding title to a facility used by the state trust company for the purposes specified by Section 184.001;

(C) a loan made by the state trust company to or on the security of equity or investment securities issued by a company holding title to a facility used by the state trust company; and

(D) any indebtedness incurred on state trust company facilities by a company:

(i) that holds title to the facility;

(ii) that is an affiliate of the state trust company; and

(iii) in which the state trust company is invested in the manner described by Paragraph (B) or (C); and

(2) may exclude an amount included under Subdivisions (1)(B)-(D) to the extent any lease of a facility from the company holding title to the facility is capitalized on the books of the state trust company.

(b) Real property described by Subsection 184.001(3) and not improved and occupied by the state trust company ceases to be a state trust company facility on the third anniversary of the date of its acquisition unless the banking commissioner on application grants written approval to further delay in the improvement and occupation of the property by the state trust company.

(c) A state trust company shall comply with regulatory accounting principles in accounting for its investment in and depreciation of trust company facilities, furniture, fixtures, and equipment.

§184.003. Other Real Property.1

(a) A state trust company may not invest its restricted capital in real property except:

(1) as permitted by this subtitle or rules adopted under this subtitle;

(2) with the prior written approval of the banking commissioner; or

(3) as necessary to avoid or minimize a loss on a loan or investment previously made in good faith.

(b) With the prior written approval of the banking commissioner, a state trust company may:

(1) exchange real property for other real property or personal property;

(2) invest additional money in or improve real property acquired under this subsection or Subsection (a); or

(3) acquire additional real property to avoid or minimize loss on real property acquired as permitted by Subsection (a).

(c) A state trust company shall dispose of any real property subject to Subsection (a) not later than the fifth anniversary of the date the real property:

(1) was acquired, except as otherwise provided by rules adopted under this subtitle;

(2) ceases to be used as a state trust company facility; or

(3) ceases to be a state trust company facility as provided by Section 184.002(b).

(d) The banking commissioner on application may grant one or more extensions of time for disposing of real property under Subsection (c) if the banking commissioner determines that:

(1) the state trust company has made a good faith effort to dispose of the real property; or

(2) disposal of the real property would be detrimental to the state trust company.

(e) Subject to the exercise of prudent judgment, a state trust company may invest its secondary capital in real property. The factors to be considered by a state trust company in exercise of prudent judgment include the factors contained in Section 184.101(e).

Subchapter B. Investments

§184.101. Securities.

(a) A state trust company may invest its restricted capital in any type or character of equity or investment securities under the limitations provided by this section.

(b) Unless the banking commissioner in writing approves maintenance of a lesser amount, a state trust company must invest and maintain an amount equal to at least 50 percent of the state trust company´s restricted capital under Section 182.008 in investment securities that are readily marketable and can be converted to cash within four business days.

(c) Subject to Subsection (d), the total investment of its restricted capital in equity and investment securities of any one issuer, obligor, or maker, and the total investment of its restricted capital in mutual funds, held by the state trust company for its own account, may not exceed an amount equal to 15 percent of the state trust company´s restricted capital.2 The banking commissioner may authorize investments in excess of this limitation on written application if the banking commissioner determines that:

(1) the excess investment is not prohibited by other applicable law; and

(2) the safety and soundness of the requesting state trust company is not adversely affected.

(d) Notwithstanding Subsection (c), a state trust company may invest its restricted capital, without limit subject to the exercise of prudent judgment, in:

(1) bonds and other legally created general obligations of a state, an agency or political subdivision of a state, the United States, or an agency or instrumentality of the United States;

(2) obligations that this state, an agency or political subdivision of this state, the United States, or an agency or instrumentality of the United States has unconditionally agreed to purchase, insure, or guarantee;

(3) securities that are offered and sold under 15 U.S.C. Section 77d(5);

(4) mortgage related securities or small business related securities, as those terms are defined by 15 U.S.C. Section 78c(a);

(5) mortgages, obligations, or other securities that are or ever have been sold by the Federal Home Loan Mortgage Corporation under Section 305 or 306, Federal Home Loan Mortgage Corporation Act (12 U.S.C. Sections 1434 and 1455);

(6) obligations, participations, or other instruments of or issued by the Federal National Mortgage Association or the Government National Mortgage Association;

(7) obligations issued by the Federal Agricultural Mortgage Association, the Federal Farm Credit Banks Funding Corporation, or a Federal Home Loan Bank;

(8) obligations of the Federal Financing Bank or the Environmental Financing Authority;

(9) obligations or other instruments or securities of the Student Loan Marketing Association; or

(10) qualified Canadian government obligations, as defined by 12 U.S.C. Section 24.

(e) In the exercise of prudent judgment, a state trust company shall, at a minimum:

(1) exercise care and caution to make and implement investment and management decisions for the entire investment portfolio, taking into consideration the safety and soundness of the state trust company;

(2) pursue an overall investment strategy to enable management to make appropriate present and future decisions; and

(3) consider, to the extent relevant to the decision or action:

(A) the size, diversification, and liquidity of its corporate assets;

(B) the general economic conditions;

(D) the expected tax consequences of the investment decisions or strategies;

(E) the role that each investment or course of action plays within the investment portfolio; and

(F) the expected total return of the portfolio.

(f) A state trust company may invest its secondary capital in any type or character of securities subject to the exercise of prudent judgment according to the standards provided by Subsection (e).

(g) The finance commission may adopt rules to administer and carry out this section, including rules to:

(1) establish limits, requirements, or exemptions other than those specified by this section for particular classes or categories of investment; or

(2) limit or expand investment authority for state trust companies for particular classes or categories of securities or other property.

§184.102. Transactions in State Trust Company Shares or Participation Shares.

Except with the prior written approval of the banking commissioner:

(1) a state trust company may not acquire its own shares or participation shares unless the amount of its undivided profits is sufficient to fully absorb the acquisition of the shares or participation shares under regulatory accounting principles;3 and

(2) a state trust company may not acquire a lien on its own shares or participation shares unless the amount of indebtedness secured is less than the amount of the state trust company´s undivided profits.

§184.103. State Trust Company Subsidiaries.

(a) Except as otherwise provided by this subtitle or rules adopted under this subtitle, and subject to the exercise of prudent judgment, a state trust company may invest its secondary capital to acquire or establish one or more subsidiaries to conduct any activity that may lawfully be conducted through the form of organization chosen for the subsidiary. The factors to be considered by a state trust company in exercise of prudent judgment include the factors contained in Section 184.101(e).

(b) A state trust company that intends to acquire, establish, or perform new activities through a subsidiary shall submit a letter to the banking commissioner describing in detail the proposed activities of the subsidiary.4

(c) The state trust company may acquire or establish a subsidiary or begin performing new activities in an existing subsidiary on the 31st day after the date the banking commissioner receives the state trust company´s letter, unless the banking commissioner specifies an earlier or later date. The banking commissioner may extend the 30-day period on a determination that the state trust company´s letter raises issues that require additional information or additional time for analysis. If the period is extended, the state trust company may acquire or establish the subsidiary, or perform new activities in an existing subsidiary, only on prior written approval of the banking commissioner.

(d) A subsidiary of a state trust company is subject to regulation by the banking commissioner to the extent provided by this subtitle or rules adopted under this section. In the absence of limiting rules, the banking commissioner may regulate a subsidiary as if it were a state trust company.

§184.104. Other Investment Provisions.

(a) Without the prior written approval of the banking commissioner, a state trust company may not make any investment of its secondary capital in any investment that incurs or may incur, under regulatory accounting principles, a liability or contingent liability for the state trust company.

(b) The banking commissioner may, on a case-by-case basis, require a state trust company to dispose of any investment of its secondary capital, if the banking commissioner finds that the divestiture of the asset is necessary to protect the safety and soundness of the state trust company. The banking commissioner in the exercise of discretion under this subsection shall consider safety and soundness factors, including those contained in Section 182.008(b). The proposed effective date of an order requiring a state trust company to dispose of an asset must be stated in the order and must be on or after the 21st day after the date the proposed order is mailed or delivered. Unless the state trust company requests a hearing before the banking commissioner in writing before the effective date of the proposed order, the order becomes effective and is final and nonappealable.

(c) Subject to Subsections (a) and (b), to Section 184.105, and to the exercise of prudent judgment, a state trust company may invest its secondary capital in any type or character of investment for the purpose of generating income or profit. The factors to be considered by a state trust company in exercise of prudent judgment include the factors contained in Section 184.101(e).

§184.105. Engaging in Commerce Prohibited.

(a) Except as otherwise provided by this subtitle or rules adopted under this subtitle, a state trust company may not invest its funds in trade or commerce by buying, selling, or otherwise dealing goods or by owning or operating a business not part of the state trust business, except as necessary to fulfill a fiduciary obligation to a client.

(b) Under this section, engaging in an approved financial activity or an activity incidental or complementary to a financial activity, whether as principal or agent, is not considered to be engaging in commerce.

Subchapter C. Loans

§184.201. Lending Limits.5

(a) A state trust company´s total outstanding loans and extensions of credit to a person other than an insider may not exceed an amount equal to 15 percent of the state trust company´s restricted capital.

(b) The aggregate loans and extensions of credit outstanding at any time to insiders of the state trust company may not exceed an amount equal to 15 percent of the state trust company´s restricted capital. All covered transactions between an insider and a state trust company must be engaged in only on terms and under circumstances, including credit standards, that are substantially the same as those for comparable transactions with a person other than an insider.

(1) establish limits, requirements, or exemptions other than those specified by this section for particular classes or categories of loans or extensions of credit; and

(2) establish collective lending and investment limits.

(d) The banking commissioner may determine whether a loan or extension of credit putatively made to a person will be attributed to another person for purposes of this section.

(e) A state trust company may not lend trust deposits, except that a trustee may make a loan to a beneficiary of the trust if the loan is expressly authorized or directed by the instrument or transaction establishing the trust.

§184.202. Violation of Lending Limit.

(a) An officer, director, manager, managing participant, or employee of a state trust company who approves or participates in the approval of a loan with actual knowledge that the loan violates Section 184.201 is jointly and severally liable to the state trust company for the lesser of the amount by which the loan exceeded applicable lending limits or the state trust company´s actual loss. The person remains liable for that amount until the loan and all prior indebtedness of the borrower to the state trust company have been fully repaid.

(b) The state trust company may initiate a proceeding to collect an amount due under this section at any time before the date the borrower defaults on the subject loan or any prior indebtedness or before the fourth anniversary of that date.

(c) A person who is liable for and pays amounts to the state trust company under this section is entitled to an assignment of the state trust company´s claim against the borrower to the extent of the payments.

(d) For purposes of this section, an officer, director, manager, managing participant, or employee of a state trust company is presumed to know the amount of the state trust company´s lending limit under Section 184.201 and the amount of the borrower´s aggregate outstanding indebtedness to the state trust company immediately before a new loan or extension of credit to that borrower.

§184.203. Lease Financing Transaction.

(a) Subject to rules adopted under this subtitle, a state trust company may become the owner and lessor of tangible personal property for lease financing transactions on a net lease basis on the specific request and for the use of a client. Without the written approval of the banking commissioner to continue holding property acquired for leasing purposes under this subsection, the state trust company may not hold the property more than six months after the date of expiration of the original or any extended or renewed lease period agreed to by the client for whom the property was acquired or by a subsequent lessee.

(b) A rental payment received by the state trust company in a lease financing transaction under this section is considered to be rent and not interest or compensation for the use, forbearance, or detention of money. However, a lease financing transaction is considered to be a loan or extension of credit for purposes of Sections 184.201 and 184.202.

§184.204. General Banking Privileges Not Conferred.

This subchapter does not confer general banking privileges on a state trust company.

Subchapter D. Trust Deposits

§184.301. Trust Deposits.6

(a) A state trust company may deposit trust funds with itself as an investment if:

(1) the deposit is authorized by the settlor or beneficiary;

(2) the state trust company maintains as security for the deposit a separate fund of securities, legal for trust investments, under control of a federal reserve bank or a clearing corporation, as defined by Section 8.102, Business & Commerce Code, within or outside this state;

(3) the total market value of the security is at all times at least equal to the amount of the deposit; and

(4) the separate fund is designated as a separate fund.

(b) A state trust company may make periodic withdrawals from or additions to a securities fund required by Subsection (a) as long as the required value is maintained. Income from the securities in the fund belongs to the state trust company.

(c) Security for a deposit under this section is not required for a deposit under Subsection (a) to the extent the deposit is insured by the Federal Deposit Insurance Corporation or its successor.

§184.302. General Banking Privileges Not Conferred.

This subchapter does not confer general banking privileges on a state trust company.

Subchapter E. Liabilities and Pledge of Assets

§184.401. Borrowing Limit.

Except with the prior written approval of the banking commissioner, a state trust company may not have outstanding liabilities, excluding trust deposit liabilities arising under Section 184.301, that exceed an amount equal to five times its restricted capital.

§184.402. Pledge of Assets.

(a) A state trust company may not pledge or create a lien on any of its assets except to secure:

(1) the repayment of money borrowed;

(2) trust deposits as specifically authorized or required by:

(A) Section 184.301;

(B) Title 9, Property Code; or

(3) deposits made by:

(A) the United States;

(B) a state, county, or municipality; or

(b) An act, deed, conveyance, pledge, or contract in violation of this section is void.

CHAPTER 185. ENFORCEMENT ACTIONS (TITLE 3; SUBTITLE F)

Subchapter A. Enforcement Orders

§185.0001. Applicability to State Trust Company.

This subchapter applies to a subsidiary of a state trust company, a present or former officer, director, manager, managing participant, or employee of a subsidiary, or a controlling shareholder or other person participating in the affairs of a subsidiary in the same manner as the subchapter applies to a state trust company, a present or former officer, director, manager, managing participant, or employee of a state trust company, or a controlling shareholder or other person participating in the affairs of a state trust company.

§185.001. Determination Letter.

(a) If the banking commissioner determines from examination or other credible evidence that a state trust company is in a condition that may warrant the issuance of an enforcement order under this chapter, the banking commissioner may notify the state trust company in writing of the determination, the requirements the state trust company must satisfy to abate the determination, and the time in which the requirements must be satisfied to avert further administrative action. The determination letter must be delivered by personal delivery or by registered or certified mail, return receipt requested.

(b) The determination letter may be issued in connection with the issuance of a cease and desist, removal, or prohibition order under this subchapter or an order of supervision or conservatorship under Subchapter B.

§185.002. Cease and Desist Order.

(a) The banking commissioner has grounds to issue a cease and desist order to an officer, employee, director, manager, or managing participant of a state trust company, or the state trust company itself acting through an authorized person, if the banking commissioner determines from examination or other credible evidence that the state trust company or person directly or indirectly has:

(1) violated this subtitle or another applicable law or rule;

(2) engaged in a breach of trust or other fiduciary duty;

(3) refused to submit to examination or examination under oath;

(4) conducted business in an unsafe or unsound manner; or

(5) violated a condition of the state trust company´s charter or an agreement between the state trust company or the person and the banking commissioner or the department.

(b) If the banking commissioner has grounds for action under Subsection (a) and finds that an order to cease and desist from a violation or other conduct described by Subsection (a) appears to be necessary and in the best interest of a state trust company involved and its clients, creditors, and shareholders or participants, the banking commissioner may serve a proposed cease and desist order on the state trust company and each person who committed or participated in the violation. The order must:

(1) be delivered by personal delivery or by registered or certified mail, return receipt requested;

(2) state with reasonable certainty the grounds for the order; and

(3) state the effective date of the order, which may not be earlier than the 21st day after the date the order is mailed or delivered.

(b-1) A proposed cease and desist order may require an officer, employee, director, manager, or managing participant of a state trust company, or the state trust company itself acting through an authorized person, to cease or desist from a violation or other practice or to take affirmative action to correct the conditions resulting from a violation or other practice, including the payment of restitution or other action that the banking commissioner determines is appropriate.

(c) The order takes effect if the state trust company or person against whom the order is directed does not request a hearing in writing before the effective date. After taking effect, the order is final and nonappealable as to that state trust company or person.

§185.003. Removal or Prohibition Order.

(a) The banking commissioner has grounds to remove or prohibit a present or former officer, director, manager, managing participant, or employee of a state trust company from office or employment in, or prohibit a controlling shareholder or participant or other person participating in the affairs of a state trust company from further participation in the affairs of, the state trust company or any other entity chartered, registered, permitted, or licensed by the banking commissioner if the banking commissioner determines from examination or other credible evidence that:

(1) the person:

(A) intentionally committed or participated in the commission of an act described by Section 185.002(a) with regard to the affairs of a financial institution, as defined by Section 201.101.

(B) violated a final cease and desist order issued by a state or federal regulatory agency against the person or an entity in which the person is or was an officer, director, or employee; or

(2) because of that action by the person:

(A) the financial institution has suffered or will probably suffer financial loss or expense, or other damage;

(B) the interests of the clients, depositors, creditors, or shareholders of the financial institution have been or could be prejudiced; or

(C) the person has received financial gain or other benefit by reason of the action, or likely would have if the action had not been discovered; and

(3) that action by the person:

(A) involves personal dishonesty on the part of the person; or

(B) demonstrates wilful or continuing disregard for the safety or soundness of the financial institution.

(b) If the banking commissioner has grounds for action under Subsection (a) and finds that a removal or prohibition order appears to be necessary and in the best interest of the public, the banking commissioner may serve a proposed removal or prohibition order, as appropriate, on an officer, employee, director, manager or managing participant, controlling shareholder or participant, or other person alleged to have committed or participated in the violation or other conduct described by Section 185.002(a). The order must:

(1) be delivered by personal delivery or by registered or certified mail, return receipt requested;

(2) state with reasonable certainty the grounds for removal or prohibition; and

(3) state the effective date of the order, which may not be before the 21st day after the date the proposed order is delivered or mailed; and

(4) state the duration of the order, including whether the duration of the order is perpetual.

(b-1) The banking commissioner may make a removal or prohibition order perpetual or effective for a specific period of time, may probate the order, or may impose other conditions on the order.

(c) The order takes effect if the person against whom the order is directed does not request a hearing in writing before the effective date. After taking effect the order is final and nonappealable as to that person.

§185.0035. Removal or Prohibition Orders in Response to Certain Criminal Offenses.

(a) For purposes of this section, a person is considered to have been finally convicted of an offense if the person's case is not subject to further appellate review and:

(1) a sentence was imposed on the person;

(2) the person received probation or community supervision, including deferred adjudication community supervision; or

(3) the court deferred final disposition of the person's case.

(b) The banking commissioner has grounds to remove or prohibit a present or former officer, director, manager, managing participant, or employee of a state trust company from office or employment in, or prohibit a controlling shareholder or participant or other person participating in the affairs of a state trust company from further participation in the affairs of, the state trust company or any other entity chartered, registered, permitted, or licensed by the banking commissioner if the person has been finally convicted of a felony offense involving:

(1) a financial institution, as defined by Section 201.101;

(2) dishonesty; or

(3) breach of trust.

(c) If the banking commissioner has grounds for action under Subsection (b), the banking commissioner may serve a removal or prohibition order, as appropriate, on the person who has been finally convicted of a felony offense. The banking commissioner shall also serve a copy of the order on any state trust company that the person is affiliated with at the time of service of the order.

(d) An order issued under this section becomes effective immediately on service and continues in effect unless the order is:

(1) stayed or terminated by the banking commissioner;

(2) set aside by the banking commissioner after a hearing; or

(3) stayed or vacated on appeal.

(e) Not later than the 30th day after the date an order is served under this section, the person against whom the order is issued may request in writing a hearing before the banking commissioner to show that the person's continued service to a state trust company or participation in the affairs of a state trust company does not, or is unlikely to, threaten the interests of the clients, depositors, creditors, or shareholders of the state trust company or the public confidence in the state trust company.

(f) Not later than the 30th day after the date a request for a hearing is received under this section, the banking commissioner shall hold the hearing, unless the party requesting the hearing requests a later date. At the hearing, the party requesting the hearing has the burden of proof.

(g) After the hearing, the banking commissioner may affirm, modify, or set aside, in whole or in part, the order. An order affirming or modifying the order is immediately final for purposes of enforcement and appeal. The order may be appealed as provided by Sections 181.202 and 181.204.

§185.004. Hearing on Proposed Order.1

(a) A requested hearing on a proposed order shall be held not later than the 30th day after the date the first request for a hearing on the order was received by the banking commissioner unless the parties agree to a later hearing date. Not later than the 11th day before the date of the hearing, each party shall be given written notice by personal delivery or by registered or certified mail, return receipt requested, of the date set by the banking commissioner for the hearing. At the hearing, the banking commissioner has the burden of proof, and each person against whom the order is directed may cross-examine witnesses and present evidence to show why the order should not be issued.

(b) After the hearing, the banking commissioner shall issue or decline to issue the order. The order may be modified as necessary to conform to the findings at the hearing and to require the board to take necessary affirmative action to correct the conditions cited in the order.

(c) An order issued under this section is immediately final for purposes of enforcement and appeal. The order may be appealed as provided by Sections 181.202 and 181.204.2

§185.005. Emergency Order.

(a) If the banking commissioner believes that immediate action is needed to prevent immediate and irreparable harm to the state trust company and its clients, creditors, and shareholders or participants, the banking commissioner may issue one or more cease and desist, removal, or prohibition orders as emergency orders to become effective immediately on service without prior notice or hearing. Service must be by personal delivery or by registered or certified mail, return receipt requested.

(b) In each emergency order the banking commissioner shall notify the state trust company and any person against whom the emergency order is directed of:

(1) the specific conduct requiring the order;

(2) the citation of each statute or rule alleged to have been violated;

(3) the immediate and irreparable harm alleged to be threatened;

(4) the duration of the order, including whether the duration of the order is perpetual; and

(5) the right to a hearing.

(c) Unless a person against whom the order is directed requests a hearing in writing before the 11th day after the date the order is served on the person, the order is final and nonappealable as to that person.

(d) A hearing requested under Subsection (c) must be:

(1) given priority over all other matters pending before the banking commissioner; and

(2) held not later than the 20th day after the date the hearing is requested unless the parties agree to a later hearing date.3

(e) After the hearing, the banking commissioner may affirm, modify, or set aside in whole or part the emergency order. An order affirming or modifying the order is immediately final for purposes of enforcement and appeal. The order may be appealed as provided by Sections 181.202 and 181.204.4

(f) An emergency order continues in effect unless the order is stayed by the banking commissioner. The banking commissioner may impose any condition before granting a stay of the emergency order.

§185.006. Copy of Letter or Order in State Trust Company Records.

A copy of any determination letter, proposed order, emergency order, or final order issued by the banking commissioner under this subchapter shall be immediately brought to the attention of the board of the affected state trust company, regardless of whether the state trust company is a party, and filed in the minutes of the board. Each director, manager, or managing participant shall immediately certify to the banking commissioner in writing that the certifying person has read and understood the determination letter, proposed order, emergency order, or final order. The required certification may not be considered an admission of a person in a subsequent legal or administrative proceeding.

§185.007. Effect of Final Removal or Prohibition Order.

(a) Except as provided by other law, without the prior written approval of the banking commissioner, a person subject to a final and enforceable removal or prohibition order issued by the banking commissioner, or by another state, federal, or foreign financial institution regulatory agency, may not:

(1) serve as a director, officer, or employee of a state trust company, state bank, or holding company of a state bank, or as a director, officer, or employee with financial responsibility of any other entity chartered, registered, permitted, or licensed by the banking commissioner under the laws of this state while the order is in effect;

(2) directly or indirectly participate in any manner in the management of such an entity;

(3) directly or indirectly vote for a director of such an entity; or

(4) solicit, procure, transfer, attempt to transfer, vote, or attempt to vote a proxy, consent, or authorization with respect to voting rights in such an entity.

(b) The person subject to the order remains entitled to receive dividends or a share of profits, return of contribution, or other distributive benefit from an entity identified in Subsection (a)(1) with respect to voting securities in the entity owned by the person.

(c) If voting securities of an entity identified in Subsection (a)(1) cannot be voted under this section, the voting securities are considered to be authorized but unissued for purposes of determining the procedures for and results of the affected vote.

(d) Participants of a limited trust association in which a participant has been finally removed or prohibited from participation in the state trust company´s affairs under this subchapter shall elect a board of managers.

(e) This section and Section 185.008 do not prohibit a removal or prohibition order that has indefinite duration or that by its terms is perpetual.

§185.0071. Application for Release from Final Removal or Prohibition Order.

(a) After the expiration of 10 years from the date of issuance, a person who is subject to a prohibition or removal order issued under this subchapter, regardless of the order's stated duration or date of issuance, may apply to the banking commissioner to be released from the order.

(b) The application must be made under oath and in the form required by the banking commissioner. The application must be accompanied by any required fees.

(c) The banking commissioner, in the exercise of discretion, may approve or deny an application filed under this section.

(d) The banking commissioner's decision under Subsection (c) is final and not appealable.

§185.008. Limitation on Action.

The banking commissioner may not initiate an enforcement action under this subchapter later than the fifth anniversary of the date the banking commissioner discovered or reasonably should have discovered the conduct involved.

§185.009. Enforcement by Commissioner.

(a) If the banking commissioner reasonably believes that a state trust company or other person has violated any of the following, the banking commissioner may take any action authorized under Subsection (a-1):

(1) this subtitle or rules enacted under this subtitle and, as a result of that violation, exposed or could have exposed the state trust company or its clients, creditors, shareholders, or participants to harm;

(2) other applicable law of this state and, as a result of that violation, exposed or could have exposed the state trust company or its clients, creditors, shareholders, or participants to harm; or

(3) a final order issued by the banking commissioner.

(a-1) The banking commissioner may:

(1) initiate administrative penalty proceedings against the state trust company or other person, as applicable, in accordance with Sections 185.010 and 185.011;

(2) refer the matter to the attorney general for enforcement by injunction or other available remedy; or

(3) pursue any other action the banking commissioner considers appropriate under applicable law.

(b) If the attorney general prevails in an action brought under Subsection (a-1)(2), the attorney general is entitled to recover reasonable attorney´s fees from a state trust company or person committing the violation.

§185.010. Administrative Penalty.

(a) The banking commissioner may initiate a proceeding for an administrative penalty against a state trust company or other person by serving on the state trust company or other person, as applicable, notice of the time and place of a hearing on the penalty.5 The hearing may not be held earlier than the 20th day after the date the notice is served. The notice must:

(1) be served by personal delivery or by registered or certified mail, return receipt requested;

(2) contain a statement of the conduct alleged to constitute a violation; and

(3) if the alleged violation is described by Section 185.009(a)(1) or (2), identify corrective action that the state trust company or other person must take to avoid or reduce the amount of a penalty that would otherwise be imposed under this section

(b) In determining the amount of any penalty to be imposed, the banking commissioner shall consider the following factors:

(1) the financial resources of the state trust company or other person;

(2) the good faith of the state trust company or other person, including any corrective action taken;

(3) the gravity of the violation;

(4) the history of previous violations;

(5) an offset of the amount of the penalty by the amount of any penalty imposed by another state or federal agency for the same conduct; and

(6) any other matter that justice may require.

(c) If the banking commissioner determines after the hearing that the alleged conduct occurred and that the conduct constitutes a violation, the banking commissioner may impose an administrative penalty against a state trust company or other person, as applicable, in an amount:

(1) if imposed against a state trust company, not more than $10,000 for each violation for each day the violation continues, except that the maximum administrative penalty that may be imposed is the lesser of $500,000 or one percent of the state trust company's assets; or

(2) if imposed against a person other than a state trust company, not more than $5,000 for each violation for each day the violation continues, except that the maximum administrative penalty that may be imposed is $250,000.

§185.011. Payment or Appeal of Administrative Penalty.

(a) When a penalty order under Section 185.010 becomes final, a state trust company or other person, as applicable, shall pay the penalty or appeal by filing a petition for judicial review.

(b) The petition for judicial review stays the penalty order during the period preceding the decision of the court. If the court sustains the order, the court shall order the state trust company or other person, as applicable, to pay the full amount of the penalty or a lower amount determined by the court. If the court does not sustain the order, a penalty is not owed. If the final judgment of the court requires payment of a penalty, interest accrues on the penalty, at the rate charged on loans to depository institutions by the Federal Reserve Bank of New York, beginning on the date the judgment is final and ending on the date the penalty and interest are paid.

(c) If the state trust company or other person, as applicable, does not pay the penalty imposed under a final and nonappealable penalty order, the banking commissioner shall refer the matter to the attorney general for enforcement. The attorney general is entitled to recover reasonable attorney´s fees from the state trust company or other person, as applicable, if the attorney general prevails in judicial action necessary for collection of the penalty.

§185.012. Confidentiality of Records.

A copy of a notice, correspondence, transcript, pleading, or other document in the records of the department relating to an order issued under this subchapter is confidential and may be released only as provided by Subchapter D, Chapter 181,6 except that the banking commissioner periodically shall publish all final removal and prohibition orders. The banking commissioner may release a final cease and desist order, a final order imposing an administrative penalty, or information regarding the existence of any of those orders to the public if the banking commissioner concludes that the release would enhance effective enforcement of the order.

§185.013. Collection of Fees.

The banking commissioner may sue to enforce the collection of a fee owed to the department under a law administered by the banking commissioner. In the suit a certificate by the banking commissioner showing the delinquency is prima facie evidence of:

(1) the levy of the fee or the delinquency of the stated fee amount; and

(2) compliance by the banking commissioner with the law relating to the computation and levy of the fee.

Subchapter B. Supervision and Conservatorship

§185.1001. Applicability to State Trust Company Subsidiaries.

§185.101. Order of Supervision.

(a) The banking commissioner by order may appoint a supervisor over a state trust company if the banking commissioner determines from examination or other credible evidence that the state trust company is in hazardous condition and that an order of supervision appears to be necessary and in the best interest of the state trust company and its clients, creditors, and shareholders or participants, or the public.

(b) The banking commissioner may issue the order without prior notice.

(1) the expiration of the period stated in the order of supervision; or

(2) the date the banking commissioner determines that the requirements for abatement of the order have been satisfied.

(d) The banking commissioner may terminate an order of supervision at any time.

§185.102. Order of Conservatorship.

(a) The banking commissioner by order may appoint a conservator for a state trust company if the banking commissioner determines from examination or other credible evidence that the state trust company is in hazardous condition and immediate and irreparable harm is threatened to the state trust company, its clients, creditors, or shareholders or participants, or the public.

(b) The banking commissioner may issue the order without prior notice at any time before, during, or after the period of supervision.

§185.103. Hearing.

(a) An order issued under Section 185.101 or 185.102 must contain or be accompanied by a notice that, at the request of the state trust company, a hearing will be held before the banking commissioner at which the state trust company may cross-examine witnesses and present evidence to contest the order or show that it has satisfied all requirements for abatement of the order. The banking commissioner has the burden of proof for any continuation of the order or the issuance of a new order.7

(b) To contest or modify the order or demonstrate that it has satisfied all requirements for abatement of the order, the state trust company shall submit to the banking commissioner a written request for a hearing. The request must state the grounds for the request to set aside or modify the order. On receiving a request for hearing, the banking commissioner shall serve notice of the time and place of the hearing, which must be not later than the 10th day after the date the banking commissioner receives the request for a hearing unless the parties agree to a later hearing date. The notice must be delivered by personal delivery or by registered or certified mail, return receipt requested.

(1) delay a decision for a prompt examination of the state trust company; and

(2) reopen the record as necessary to allow presentation of the results of the examination and appropriate opportunity for cross-examination and presentation of other relevant evidence.

§185.104. Post-hearing Order.

(a) If after the hearing the banking commissioner finds that the state trust company has been rehabilitated, that its hazardous condition has been remedied, that irreparable harm is no longer threatened, or that the state trust company should otherwise be released from the order, the banking commissioner shall release the state trust company from the order, subject to conditions the banking commissioner from the evidence believes are warranted to preserve the safety and soundness of the state trust company.

(b) If after the hearing the banking commissioner finds that the state trust company has failed to comply with the lawful requirements of the banking commissioner, has not been rehabilitated, is insolvent, or otherwise continues in hazardous condition, the banking commissioner by order shall:

(1) appoint or reappoint a supervisor pursuant to Section 185.101;

(2) appoint or reappoint a conservator pursuant to Section 185.102; or

(3) take other appropriate action authorized by law.

(c) An order issued under Subsection (b) is immediately final for purposes of appeal. The order may be appealed as provided by Sections 181.202 and 181.204.8

§185.105. Confidentiality of Records.

An order issued under this subchapter and a copy of a notice, correspondence, transcript, pleading, or other document in the records of the department relating to the order are confidential and may be released only as provided by Subchapter D, Chapter 181,9 except that the banking commissioner may release to the public an order or information relating to the existence of an order if the banking commissioner concludes that the release would enhance effective enforcement of the order.

§185.106. Duties of State Trust Company under Supervision.

During a period of supervision, a state trust company, without the prior approval of the banking commissioner or the supervisor or as otherwise permitted or restricted by the order of supervision, may not:

(1) dispose of, sell, transfer, convey, or encumber the state trust company´s assets;

(2) lend or invest the state trust company´s funds;

(3) incur a debt, obligation, or liability;

(4) pay a cash dividend to the state trust company´s shareholders or participants;

(5) solicit or accept any new client accounts; or

(6) remove an executive officer or director, change the number of executive officers or directors, or have any other change in the position of executive officer or director.

§185.107. Powers and Duties of Conservator.

(a) A conservator appointed under this subchapter shall immediately take charge of the state trust company and all of its property, books, records, and affairs on behalf and at the direction and control of the banking commissioner.

(b) Subject to any limitation contained in the order of appointment or other direction of the banking commissioner, the conservator has all the powers of the directors, managers, managing participants, officers, and shareholders or participants of a state trust company and shall conduct the business of the state trust company and take all steps the conservator considers appropriate to remove the causes and conditions requiring the conservatorship. During the conservatorship, the board may not direct or participate in the affairs of the state trust company.

(c) Except as otherwise provided by this subchapter, by rules adopted under this subtitle, or by Section 12.106, the conservator has the rights and privileges and is subject to the duties, restrictions, penalties, conditions, and limitations of the directors, officers, and employees of state trust companies.

§185.108. Qualifications of Appointee.

The banking commissioner may appoint as a supervisor or conservator any person who in the judgment of the banking commissioner is qualified to serve. The banking commissioner may serve as, or may appoint an employee of the department to serve as, a supervisor or conservator.

§185.109. Expenses.

(a) The banking commissioner shall determine and approve the reasonable expenses attributable to the service of a supervisor or conservator, including costs incurred by the department and the compensation and expenses of the supervisor or conservator and any professional employees appointed to represent or assist the supervisor or conservator. The banking commissioner or an employee of the department may not receive compensation in addition to salary for serving as supervisor or conservator, but the department may receive reimbursement for the fully allocated personnel cost associated with service of the banking commissioner or an employee as supervisor or conservator.

(b) All approved expenses shall be paid by the state trust company as the banking commissioner determines. The banking commissioner has a lien against the assets and funds of the state trust company to secure payment of approved expenses. The lien has a higher priority than any other lien against the state trust company.

(c) Notwithstanding any other provision of this subchapter, the state trust company may employ an attorney and other persons the state trust company selects to assist the state trust company in contesting or satisfying the requirements of an order of supervision or conservatorship. The banking commissioner shall authorize the payment of reasonable fees and expenses from the state trust company for the attorney or other persons as expenses of the supervision or conservatorship.

(d) The banking commissioner may defer collection of assessment and examination fees by the department from the state trust company during a period of supervision or conservatorship if deferral appears to aid prospects for rehabilitation. As a condition of release from supervision or conservatorship, the banking commissioner may require the rehabilitated state trust company to pay or develop a reasonable plan for payment of deferred fees.

§185.110. Review of Supervisor or Conservator Decisions.

(a) Notwithstanding Section 185.107(b), a majority of the state trust company´s board, acting directly or through counsel who affirmatively represents that the requisite majority has been obtained, may request in writing that the banking commissioner review an action taken or proposed by the supervisor or conservator. The request must specify why the action would not be in the best interest of the state trust company. The banking commissioner shall investigate to the extent necessary and make a prompt written ruling on the request. If the action has not yet been taken or if the effect of the action can be postponed, the banking commissioner may stay the action on request pending review.

(b) If a majority of the state trust company´s board objects to the banking commissioner´s ruling, the majority may request a hearing before the banking commissioner. The request must be made not later than the 10th day after the date the state trust company is notified of the ruling.

(c) The banking commissioner shall give the board notice of the time and place of the hearing by personal delivery or by registered or certified mail, return receipt requested. The hearing may not be held later than the 10th day after the date the banking commissioner receives the request for a hearing unless the parties agree to a later hearing date. At the hearing the board has the burden of proof to demonstrate that the action is not in the best interest of the state trust company.10

(d) After the hearing, the banking commissioner may affirm, modify, or set aside in whole or part the prior ruling. An order supporting the action contested by the board is immediately final for purposes of appeal. The order may be appealed as provided by Sections 181.202 and 181.204.

§185.111. Suit Filed Against or on Behalf of State Trust Company under Supervision or Conservatorship.

(a) A suit filed against a state trust company while the state trust company is under conservatorship, or against a person in connection with an action taken or decision made by that person as a supervisor or conservator of a state trust company, must be brought in Travis County regardless of whether the state trust company remains under an order of supervision or conservatorship.

(b) A conservator may sue a person on the trust company´s behalf to preserve, protect, or recover state trust company assets, including claims or causes of action. The suit may be in:

(1) Travis County; or

(2) another location where jurisdiction and venue against that person may be obtained under law.

§185.112. Duration.

A supervisor or conservator serves for the period necessary to accomplish the purposes of the supervision or conservatorship as intended by this subchapter. A rehabilitated state trust company shall be returned to its former or new management under conditions reasonable and necessary to prevent recurrence of the conditions causing the supervision or conservatorship.

§185.113. Administrative Election of Remedies.

The banking commissioner may take any action authorized under Chapter 186 regardless of the existence of supervision or conservatorship. A period of supervision or conservatorship is not required before a trust company is closed for liquidation or other remedial action is taken.

§185.114. Release Before Hearing.

This subchapter does not prevent release of a state trust company from supervision or conservatorship before a hearing if the banking commissioner is satisfied that requirements for abatement have been adequately satisfied.

Subchapter C. Unauthorized Trust Activity: Investigation and Enforcement

§185.201. Investigation of Unauthorized Trust Activity.

(a) If the banking commissioner has reason to believe that a person has engaged, is engaging, or is likely to engage in an unauthorized trust activity, the banking commissioner may:

(1) investigate as necessary within or outside this state to:

(A) determine whether the unauthorized trust activity has occurred or is likely to occur; or

(B) aid in the enforcement of the laws administered by the banking commissioner;

(2) initiate appropriate disciplinary action as provided by this subchapter; and

(3) report any unauthorized trust activity to a law enforcement agency or another regulatory agency with appropriate jurisdiction.

(b) The banking commissioner may:

(1) on written request furnish to a law enforcement agency evidence the banking commissioner has compiled in connection with the unauthorized activity, including materials, documents, reports, and complaints; and

(2) assist the law enforcement agency or other regulatory agency as requested.

(c) A person acting without malice, fraudulent intent, or bad faith is not subject to liability, including liability for libel, slander, or other relevant tort, because the person files a report or furnishes, orally or in writing, information concerning a suspected, anticipated, or completed unauthorized activity to a law enforcement agency, the banking commissioner or another regulatory agency with appropriate jurisdiction, or an agent or employee of a law enforcement agency, the banking commissioner, or other regulatory agency. The person is entitled to attorney´s fees and court costs if the person prevails in an action for libel, slander, or any other relevant tort based on the report or other information the person furnished as provided by this subchapter.

(d) This section does not:

(1) affect or modify a common law or statutory privilege or immunity;

(2) preempt the authority or relieve the duty of a law enforcement agency or other regulatory agency with appropriate jurisdiction to investigate and prosecute suspected criminal acts;

(3) prohibit a person from voluntarily disclosing information to a law enforcement agency or other regulatory agency; or

(4) limit a power or duty granted to the banking commissioner under this subtitle or other law.

§185.202. Subpoena Authority.

(a) This section applies only to an investigation of an unauthorized trust activity as provided by Section 185.201, and does not affect the conduct of a contested case under Chapter 2001, Government Code.

(b) The banking commissioner may issue a subpoena to compel the attendance and testimony of a witness or the production of a book, account, record, paper, or correspondence relating to a matter that the banking commissioner has authority to consider or investigate at the department´s offices in Austin or at another place the banking commissioner designates.

(d) A person who is required by subpoena to attend a proceeding before the banking commissioner is entitled to receive:

(1) reimbursement for mileage, in the amount provided for travel by a state employee, for traveling to or returning from a proceeding that is more than 25 miles from the witness´s residence; and

(2) a fee for each day or part of a day the witness is necessarily present as a witness in an amount equal to the per diem travel allowance of a state employee.

(e) The banking commissioner may serve the subpoena or have it served by an authorized agent of the banking commissioner, a sheriff, or a constable. The sheriff or constable´s fee for serving the subpoena is the same as the fee paid the sheriff or constable for similar services.

(f) A person possessing materials located outside this state that are requested by the banking commissioner may make the materials available to the banking commissioner or a representative of the banking commissioner for examination at the place where the materials are located. The banking commissioner may:

(1) designate a representative, including an official of the state in which the materials are located, to examine the materials; and

(2) respond to a similar request from an official of another state, the United States, or a foreign country.

(g) A subpoena issued under this section to a financial institution is not subject to Section 59.006.

(1) disclose that the subpoena has been issued;

(2) disclose or describe any records requested in the subpoena;

(3) disclose whether records have been furnished in response to the subpoena; or

(4) if the subpoena requires a person to be examined under oath, disclose or describe the examination, including the questions asked, the testimony given, or the transcript produced.

(i) A subpoena issued under this section may prohibit the disclosure of information described by Subsection (h) only if the banking commissioner finds, and the subpoena states, that:

(1) the subpoena, the examination, or the records relate to an ongoing investigation; and

(2) the disclosure could significantly impede or jeopardize the investigation.

§185.203. Enforcement of Subpoena.

(a) If necessary, the banking commissioner may apply to a district court in Travis County or in the county in which the subpoena was served for enforcement of the subpoena, and the court may issue an order compelling compliance.

(b) If the court orders compliance with the subpoena or finds the person in contempt for failure to obey the order, the banking commissioner, or the attorney general if representing the banking commissioner, may recover reasonable court costs, attorney´s fees, and investigative costs incurred in the proceeding.

§185.204. Confidentiality of Subpoenaed Records.

(a) A book, account, record, paper, correspondence, or other document subpoenaed and produced under Section 185.202 that is otherwise made privileged or confidential by law remains privileged or confidential unless admitted into evidence at an administrative hearing or in a court. The banking commissioner may issue an order protecting the confidentiality or privilege of the document and restricting its use or distribution by any person or in any proceeding, other than a proceeding before the banking commissioner.

(b) Subject to Subchapter D, Chapter 181,12 and confidentiality provisions of other law administered by the banking commissioner, information or material acquired under Section 185.202 under a subpoena is not a public record for the period the banking commissioner considers reasonably necessary to complete the investigation, protect the person being investigated from unwarranted injury, or serve the public interest. The information or material is not subject to a subpoena, except a grand jury subpoena, until released for public inspection by the banking commissioner or, after notice and a hearing, a district court determines that the public interest and any investigation by the banking commissioner would not be jeopardized by obeying the subpoena. The district court order may not apply to:

(1) a record or communication received from another law enforcement or regulatory agency except on compliance with the confidentiality laws governing the records of the other agency; or

(2) an internal note, memorandum, report, or communication made in connection with a matter that the banking commissioner has the authority to consider or investigate, except on good cause and compliance with applicable confidentiality laws.

§185.205. Evidence.

(a) On certification by the banking commissioner, a book, record, paper, or document produced or testimony taken as provided by Section 185.202 and held by the department is admissible as evidence in any case without prior proof of its correctness and without other proof. The certified book, record, document, or paper, or a certified copy, is prima facie evidence of the facts it contains.

(b) This section does not limit another provision of this subtitle or a law that provides for the admission of evidence or its evidentiary value.

§185.206. Cease and Desist Order Regarding Unauthorized Trust Activity.

(a) The banking commissioner may serve a proposed cease and desist order on a person the banking commissioner believes is engaging or is likely to engage in an unauthorized trust activity. The order must:

(1) be delivered by personal delivery or registered or certified mail, return receipt requested, to the person´s last known address;

(2) state the acts or practices alleged to be an unauthorized activity; and

(3) state the effective date of the order, which may not be earlier than the 21st day after the date the proposed order is mailed or delivered.

(b) Unless the person against whom the proposed order is directed requests a hearing in writing before the effective date of the proposed order, the order takes effect and is final and nonappealable as to that person.

(c) A requested hearing on a proposed order shall be held not later than the 30th day after the date the first written request for a hearing on the order is received by the banking commissioner unless the parties agree to a later hearing date. At the hearing, the banking commissioner has the burden of proof and must present evidence in support of the order. Each person against whom the order is directed may cross-examine witnesses and show cause why the order should not be issued.13

(d) After the hearing, the banking commissioner shall issue or decline to issue a cease and desist order. The proposed order may be modified as necessary to conform to the findings at the hearing. An order issued under this subsection:

(1) is immediately final for purposes of enforcement and appeal; and

(2) must require the person to immediately cease and desist from the unauthorized trust activity.

(e) The banking commissioner may release a final cease and desist order issued under this section or information relating to the existence of the order to the public if the banking commissioner finds that the release would enhance the effective enforcement of the order or will serve the public interest.

§185.207. Emergency Cease and Desist Order.

(a) The banking commissioner may issue an emergency cease and desist order to a person who the banking commissioner reasonably believes is engaging in a continuing unauthorized trust activity that is fraudulent or threatens immediate and irreparable public harm.

(b) The order must:

(1) be delivered on issuance to each person affected by the order by personal delivery or registered or certified mail, return receipt requested, to the person´s last known address;

(2) state the specific charges and require the person immediately to cease and desist from the unauthorized activity; and

(3) contain a notice that a request for hearing may be filed under this section.

(c) Unless a person against whom the emergency order is directed requests a hearing in writing before the 11th day after the date it is served on the person, the emergency order is final and nonappealable as to that person. A request for a hearing must:

(1) be in writing and directed to the banking commissioner; and

(2) state the grounds for the request to set aside or modify the order.

(d) On receiving a request for a hearing, the banking commissioner shall serve notice of the time and place of the hearing by personal delivery or registered or certified mail, return receipt requested. The hearing must be held not later than the 10th day after the date the banking commissioner receives the request for a hearing unless the parties agree to a later hearing date. At the hearing, the banking commissioner has the burden of proof and must present evidence in support of the order. The person requesting the hearing may cross-examine witnesses and show cause why the order should not be affirmed.14

(e) After the hearing, the banking commissioner shall affirm, modify, or set aside in whole or part the emergency cease and desist order. An order affirming or modifying the emergency cease and desist order is immediately final for purposes of enforcement and appeal.

(f) An order continues in effect unless the order is stayed by the banking commissioner. The banking commissioner may impose any condition before granting a stay of the order.

(g) The banking commissioner may release a final cease and desist order issued under this section or information regarding the existence of the order to the public if the banking commissioner finds that the release would enhance the effective enforcement of the order or will serve the public interest.

§185.208. Appeal of Cease and Desist Order.

(a) A person affected by a cease and desist order issued, affirmed, or modified after a hearing may file a petition for judicial review.

(b) A filed petition for judicial review does not stay or vacate the order unless the court, after hearing, specifically stays or vacates the order.

§185.209. Violation of Final Cease and Desist Order.

(a) If the banking commissioner reasonably believes that a person has violated a final and enforceable cease and desist order, the banking commissioner may:

(1) initiate administrative penalty proceedings under Section 185.210;

(2) refer the matter to the attorney general for enforcement by injunction and any other available remedy; or

(3) pursue any other action the banking commissioner considers appropriate under applicable law.

(b) If the attorney general prevails in an action brought under Subsection (a)(2), the attorney general is entitled to reasonable attorney´s fees.

§185.210. Administrative Penalty.

(a) The banking commissioner may initiate an action for an administrative penalty against a person for a violation of a cease and desist order by serving on the person notice of the time and place of a hearing on the penalty. The notice must be delivered by personal delivery or registered or certified mail, return receipt requested, to the person´s last known address. The hearing may not be held earlier than the 20th day after the date the notice is served.15 The notice must contain a statement of the facts or conduct alleged to be in violation of the cease and desist order.

(b) In determining whether a cease and desist order has been violated, the banking commissioner shall consider the maintenance of procedures reasonably adopted to ensure compliance with the order.

(c) If the banking commissioner after the hearing determines that a cease and desist order has been violated, the banking commissioner may:

(1) impose an administrative penalty in an amount not to exceed $25,000 for each separate act of unauthorized activity;

(2) direct the person against whom the order was issued to make complete restitution, in the form and amount and within the period determined by the banking commissioner, to each resident of this state and entity operating in this state damaged by the violation; or

(3) both impose the penalty and direct restitution.

(d) In determining the amount of the penalty and whether to impose restitution, the banking commissioner shall consider:

(1) the seriousness of the violation, including the nature, circumstances, extent, and gravity of any prohibited act;

(2) the economic harm caused by the violation;

(3) the history of previous violations;

(4) the amount necessary to deter future violations;

(5) efforts to correct the violation;

(6) whether the violation was intentional or unintentional;

(7) the financial ability of the person against whom the penalty is to be assessed; and

(8) any other matter that justice may require.

§185.211. Payment and Appeal of Administrative Penalty.

(a) When an administrative penalty order under Section 185.210 becomes final, a person affected by the order, within the time permitted by law for appeal, shall:

(1) pay the amount of the penalty;

(2) pay the amount of the penalty and file a petition for judicial review contesting the occurrence of the violation, the amount of the penalty, or both; or

(3) without paying the amount of the penalty, file a petition for judicial review contesting the occurrence of the violation, the amount of the penalty, or both.

(b) Within the time permitted by law for appeal, a person who acts under Subsection (a)(3) may:

(1) stay enforcement of the penalty by:

(A) paying the amount of the penalty to the court for placement in an escrow account; or

(B) giving the court a supersedeas bond that is approved by the court for the amount of the penalty and that is effective until all judicial review of the order is final; or

(2) request the court to stay enforcement of the penalty by:

(A) filing with the court a sworn affidavit of the person stating that the person is financially unable to pay the amount of the penalty and is financially unable to give the supersedeas bond; and

(B) giving a copy of the affidavit to the banking commissioner by certified mail.

(c) Not later than the fifth day after the date the banking commissioner receives a copy of an affidavit under Subsection (b)(2), the banking commissioner may file with the court a contest to the affidavit. The court shall hold a hearing on the facts alleged in the affidavit as soon as practicable and shall stay the enforcement of the penalty on finding that the alleged facts are true. The person who files an affidavit has the burden of proving that the person is financially unable to pay the amount of the penalty and to give a supersedeas bond.

(d) If the person does not pay the amount of the penalty and the enforcement of the penalty is not stayed, the banking commissioner may refer the matter to the attorney general for collection of the amount of the penalty.

§185.212. Judicial Review of Administrative Penalty.

(a) If on judicial review the court sustains the penalty order, the court shall order the person to pay the full amount of the penalty or a lower amount determined by the court. If the court does not sustain the order, a penalty is not owed.

(b) When the judgment of the court becomes final, if the person paid the amount of the penalty and if that amount is reduced or is not upheld by the court, the court shall order that the appropriate amount plus accrued interest computed at the annual rate of 10 percent be remitted to the person. The interest shall be paid for the period beginning on the date the penalty was paid and ending on the date the penalty is remitted. If the person gave a supersedeas bond and the amount of the penalty is not upheld by the court, the court shall order the release of the bond. If the person gave a supersedeas bond and the amount of the penalty is reduced, the court shall order the release of the bond after the person pays the amount of the penalty.

(c) If the judgment of the court requires payment of a penalty that has not previously been paid, the court shall order as part of its judgment that interest accrues on the penalty at the annual rate of 10 percent, beginning on the date the judgment is final and ending on the date the penalty and interest are paid.

CHAPTER 186. DISSOLUTION AND RECEIVERSHIP (TITLE 3; SUBTITLE F)

Subchapter A. General Provisions

§186.001. Definition.

In this chapter, "administrative expense" means:

(1) an expense designated as an administrative expense by Subchapter C or D;

(2) court costs and expenses of operation and liquidation of a state trust company estate;

(3) wages owed to an employee of a state trust company for services rendered within three months before the date the state trust company was closed for liquidation and not exceeding:

(A) $2,000 to each employee; or

(B) another amount set by rules adopted under this subtitle;

(4) current wages owed to a state trust company employee whose services are retained by the receiver for services rendered after the date the state trust company is closed for liquidation;

(5) an unpaid expense of supervision or conservatorship of the state trust company before its closing for liquidation; and

(6) any unpaid fees or assessments owed to the department.

§186.002. Remedies Exclusive.

(a) Unless the banking commissioner so requests, a court may not:

(1) order the closing or suspension of operation of a state trust company; or

(2) appoint for a state trust company a receiver, supervisor, conservator, or liquidator, or other person with similar responsibility.

(b) A person may not be designated receiver, supervisor, conservator, or liquidator without the voluntary approval and concurrence of the banking commissioner.

§186.003. Federal Deposit Insurance Corporation as Liquidator.

(a) The banking commissioner without court action may tender a state trust company that has been closed for liquidation to the Federal Deposit Insurance Corporation or its successor as receiver and liquidating agent if the trust deposits of the state trust company were insured by the Federal Deposit Insurance Corporation or its successor on the date of closing.

(b) After acceptance of tender of the state trust company, the Federal Deposit Insurance Corporation or its successor shall perform the acts and duties as receiver of the state trust company that it considers necessary or desirable and that are permitted or required by federal law or this chapter.

(c) If the Federal Deposit Insurance Corporation or its successor refuses to accept tender of the state trust company, the banking commissioner shall act as receiver.

§186.004. Appointment of Independent Receiver.

(a) On request of the banking commissioner, the court in which a liquidation proceeding is pending may:

(1) appoint an independent receiver; and

(2) require a suitable bond of the independent receiver.

(b) On appointment of an independent receiver, the banking commissioner is discharged as receiver and remains a party to the liquidation proceeding with standing to initiate or contest any motion. The views of the banking commissioner are entitled to deference unless they are inconsistent with the plain meaning of this chapter.

§186.005. Succession of Trust Powers.

(a) If a state trust company in the process of voluntary or involuntary dissolution and liquidation is acting as trustee, guardian, executor, administrator, or escrow agent, or in another fiduciary or custodial capacity, the banking commissioner may authorize the sale of the state trust company´s administration of fiduciary accounts to a successor entity with fiduciary powers.

(b) The successor entity, without the necessity of action by a court or the creator or a beneficiary of the fiduciary relationship, shall:

(1) continue the office, trust, or fiduciary relationship; and

(2) perform all the duties and exercise all the powers connected with or incidental to the fiduciary relationship as if the successor entity had been originally designated as the fiduciary.

(c) This section applies to all fiduciary relationships, including a trust established for the benefit of a minor by court order under Section 142.005, Property Code. This section does not affect any right of a court or a party to the instrument governing the fiduciary relationship to subsequently designate another trustee as the successor fiduciary.

Subchapter B. Voluntary Dissolution

§186.101. Initiating Voluntary Dissolution.

(a) A state trust company may initiate voluntary dissolution and surrender its charter as provided by this subchapter:

(1) with the approval of the banking commissioner;

(2) after complying with the provisions of the Business Organizations Code regarding board and shareholder approval for voluntary dissolution; and

(3) by filing the notice of dissolution as provided by Section 186.102.

(b) The shareholders or participants of a state trust company initiating voluntary dissolution by resolution shall appoint one or more persons to act as liquidating agent or committee. The liquidating agent or committee shall conduct the liquidation as provided by law and under the supervision of the board. The board, in consultation with the banking commissioner, shall require the liquidating agent or committee to give a suitable bond.

§186.102. Filing Resolutions with Banking Commissioner.

After resolutions to dissolve and liquidate a state trust company have been adopted by the board and shareholders or participants, a majority of the directors, managers, or managing participants shall verify and file with the banking commissioner certified copies of:

(1) the resolutions of the shareholders or participants that:

(A) are adopted at a meeting for which proper notice was given or by unanimous written consent; and

(B) approve the dissolution and liquidation of the state trust company;

(2) the resolutions of the board approving the dissolution and liquidation of the state trust company if the trust company is operated by a board of directors or managers;

(3) the notice to the shareholders or participants informing them of the meeting described by Subdivision (1)(A); and

(4) a plan of liquidation.

§186.103. Banking Commissioner Investigation and Consent.

The banking commissioner shall review the documentation submitted under Section 186.102 and conduct any necessary investigation or examination. If the proceedings appear to have been properly conducted and the bond to be given by the liquidating agent or committee is adequate for its purposes, the banking commissioner shall consent to dissolution and direct the state trust company to publish notice of its pending dissolution.

§186.104. Notice of Pending Dissolution.

(a) A state trust company shall publish notice of its pending dissolution in a newspaper of general circulation in each community where its home office or an additional trust office is located:

(1) at least once each week for eight consecutive weeks; or

(2) at other times specified by the banking commissioner or rules adopted under this subtitle.

(b) The notice must:

(1) be in the form and include the information required by the banking commissioner; and

(2) state that:

(A) the state trust company is liquidating;

(B) clients, depositors, and creditors must present their claims for payment on or before a specific date; and

(C) all safe deposit box holders and bailors of property left with the state trust company should remove their property on or before a specified date.

(1) be approved by the banking commissioner;

(2) allow the affairs of the state trust company to be wound up as quickly as feasible; and

(3) allow creditors, clients, and owners of property adequate time for presentation of claims, withdrawal of accounts, and redemption of property.

(d) The banking commissioner may adjust the dates under Subsection (b) with or without republication of notice if additional time appears needed for the activities to which the dates pertain.

(e) At the time of or promptly after publication of the notice, the state trust company shall mail to each of the state trust company´s known clients, depositors, creditors, safe deposit box holders, and bailors of property left with the state trust company, at the mailing address shown on the state trust company´s records, an individual notice containing:

(1) the information required in a notice under Subsection (b); and

(2) specific information pertinent to the account or property of the addressee.

§186.105. Safe Deposits and Other Bailments.

(a) A contract between the state trust company and a person for bailment, of deposit for hire, or for the lease of a safe, vault, or box, ceases on the date specified in the notice as the date for removal of property or a later date approved by the banking commissioner. A person who has paid rental or storage charges for a period extending beyond the date designated for removal of property has an unsecured claim against the state trust company for a refund of the unearned amount paid.

(b) If the property is not removed by the date the contract ceases, an officer of the state trust company shall inventory the property. In making the inventory, the officer may open a safe, vault, box, package, parcel, or receptacle in the custody or possession of the state trust company. The inventory must be made in the presence of a notary public who is not an officer or employee of the state trust company and who is bonded in an amount and by sureties approved by the banking commissioner. The property shall be marked to identify, to the extent possible, its owner or the person who left it with the state trust company.

(c) After all property belonging to others that is in the state trust company´s custody and control has been inventoried, a master list certified by the state trust company officer and the notary public shall be furnished to the banking commissioner. The master list shall be kept in a place and dealt with in a manner the banking commissioner specifies pending delivery of the property to its owner or to the comptroller as unclaimed property.

§186.106. Offices to Remain Open.

Unless the banking commissioner directs or consents otherwise, the home office and all additional trust offices of a state trust company initiating voluntary dissolution shall remain open for business during normal business hours until the last date specified in published notices for presentation of claims, withdrawal of accounts, and redemption of property.

§186.107. Fiduciary Activities.

(a) As soon as practicable after publication of the notice of dissolution, the state trust company shall:

(1) terminate all fiduciary positions it holds;

(2) surrender all property held by it as a fiduciary; and

(3) settle its fiduciary accounts.

(b) Unless all fiduciary accounts are settled and transferred by the last date specified in published notices or by the banking commissioner and unless the banking commissioner directs otherwise, the state trust company shall mail a notice to each trustor and beneficiary of any remaining trust, escrow arrangement, or other fiduciary relationship. The notice must state:

(1) the location of an office open during normal business hours where administration of the remaining fiduciary accounts will continue until settled or transferred; and

(2) a telephone number at that office.

§186.108. Final Liquidation.

(a) After the state trust company has taken all of the actions specified by Sections 186.102, 186.104, 186.105, and 186.107, paid all its debts and obligations, and transferred all property for which a legal claimant has been found after the time for presentation of claims has expired, the state trust company shall make a list from its books of the names of each depositor, creditor, owner of personal property in the state trust company´s possession or custody, or lessee of any safe, vault, or box, who has not claimed or has not received a deposit, debt, dividend, interest, balance, or other amount or property due to the person. The list must be sworn to or affirmed by a majority of the board or managing participants of the state trust company.

(b) The state trust company shall:

(1) file the list and any necessary identifying information with the banking commissioner;

(2) pay any unclaimed money and deliver any unclaimed property to the comptroller as provided by Chapter 74, Property Code; and

(3) certify to the banking commissioner that the unclaimed money has been paid and unclaimed property has been delivered to the comptroller.

(c) After the banking commissioner has reviewed the list and has reconciled the unclaimed cash and property with the amounts of money and property reported and transferred to the comptroller, the banking commissioner shall allow the state trust company to distribute the state trust company´s remaining assets, if any, among its shareholders, participants, or participant-transferees as their ownership interests appear.

(d) After distribution of all remaining assets under Subsection (c), the state trust company shall file with the department:

(1) an affidavit and schedules sworn to or affirmed by a majority of the board or managing participants, showing the distribution to each shareholder, participant, or participant-transferee;

(2) all copies of reports of examination of the state trust company in its possession;

(3) its original charter or an affidavit stating that the original charter is lost; and

(4) any certificates of authority for additional trust offices.

(e) After verifying the submitted information and documents, the banking commissioner shall issue a certificate canceling the charter of the state trust company.

§186.109. Application of Law to State Trust Company in Dissolution.

A state trust company in the process of voluntary dissolution and liquidation remains subject to this subtitle, including provisions for examination by the banking commissioner, and the state trust company shall furnish reports required by the banking commissioner.

§186.110. Authorization of Deviation from Procedures.

The banking commissioner may authorize a deviation from the procedures for voluntary dissolution provided by this subchapter if the banking commissioner determines that the interests of claimants are not jeopardized by the deviation.

§186.111. Closure by Banking Commissioner for Involuntary Dissolution and Liquidation.

The banking commissioner may close the state trust company for involuntary dissolution and liquidation under this chapter if the banking commissioner determines that:

(1) the voluntary liquidation is:

(A) being conducted in an improper or illegal manner; or

(B) not in the best interests of the state trust company´s clients and creditors; or

(2) the state trust company is insolvent or imminently insolvent.

§186.112. Application for New Charter.

After a state trust company´s charter has been voluntarily surrendered and canceled, the state trust company may not resume business or reopen except on application for and approval of a new charter.

Subchapter C. Involuntary Dissolution and Liquidation

§186.201. Action to Close State Trust Company.

(a) The banking commissioner may by written order close and liquidate a state trust company on finding that:

(1) the interests of its clients and creditors are jeopardized by the state trust company´s insolvency or imminent insolvency; and

(2) the best interests of clients and creditors would be served by requiring that the state trust company be closed and its assets liquidated.

(b) A majority of the state trust company´s directors, managers, or managing participants may voluntarily close the state trust company and place it with the banking commissioner for liquidation.

§186.202. Notice and Effect of Closure; Appointment of Receiver.

(a) After closing a state trust company under Section 186.201, the banking commissioner shall attach to or otherwise display at its main entrance a copy of the written closing order issued under Section 186.201(a) and containing the findings on which the closing of the state trust company is based. A correspondent bank of the closed state trust company may not pay an item drawn on the account of the closed state trust company that is presented for payment after the correspondent has received actual notice of closing unless it previously certified the item for payment.

(b) As soon as practicable after posting the closing order at the state trust company´s main entrance, the banking commissioner shall tender the state trust company to the Federal Deposit Insurance Corporation as provided by Section 186.003 or initiate a receivership proceeding by filing a certified copy of the closing order in district court in Travis County, subject to Subsection (c). The court in which the closing order is filed shall docket it as a case styled, "In re liquidation of ____" (inserting the name of the state trust company). When the closing order is filed, the court has constructive custody of all the state trust company´s assets and any action that seeks to directly or indirectly affect state trust company assets is considered an intervention in the receivership proceeding and subject to this subchapter and Subchapter D.

(c) Venue for an action instituted to effect, contest, or intervene in the liquidation of a state trust company is in Travis County, except that on motion filed and served concurrently with or before the filing of the answer, the court may, on a finding of good cause, transfer the action to the county of the state trust company´s home office.

§186.203. Nature and Duration of Receivership.

(a) The court may not require a bond from the banking commissioner as receiver.

(b) A reference in this chapter to the receiver is a reference to the banking commissioner as receiver and to any successors in office, the Federal Deposit Insurance Corporation if acting as receiver as provided by Section 186.003 and federal law, or an independent receiver appointed at the request of the banking commissioner as provided by Section 186.004.

(c) The receiver has all the powers of the directors, managers, managing participants, officers, and shareholders or participants of the state trust company as necessary to support an action taken on behalf of the state trust company.

(d) The receiver and all employees and agents acting on behalf of the receiver are acting in an official capacity and are protected by Section 12.106. An act of the receiver is an act of the state trust company in liquidation. This state or a political subdivision of this state is not liable and may not be held accountable for any debt or obligation of a state trust company in receivership.

(e) Section 64.072, Civil Practice and Remedies Code, applies to the receivership of a state trust company except as provided by this subsection. A state trust company receivership shall be administered continuously for the length of time necessary to complete its purposes, and a period prescribed by other law limiting the time for the administration of a receivership or of corporate affairs generally, including Section 64.072(d), Civil Practice and Remedies Code, does not apply.

§186.204. Contest of Liquidation.

(a) A state trust company, acting through a majority of its directors, managers, or managing participants, may intervene in an action filed by the banking commissioner closing a state trust company to challenge the banking commissioner´s closing of the state trust company and to enjoin the banking commissioner or other receiver from liquidating its assets. The state trust company must file the intervention not later than the second business day after the closing of the state trust company, excluding legal holidays. The court may issue an ex parte order restraining the receiver from liquidating state trust company assets pending a hearing on the injunction. The receiver shall comply with the restraining order but may petition the court for permission to liquidate an asset as necessary to prevent its loss or diminution pending the outcome of the injunction action.

(b) The court shall hear an action under Subsection (a) as quickly as possible and shall give it priority over other business.

(c) The state trust company or receiver may appeal the court´s judgment as in other civil cases, except that the receiver shall retain all state trust company assets pending a final appellate court order even if the banking commissioner does not prevail in the trial court. If the banking commissioner prevails in the trial court, liquidation of the state trust company may proceed unless the trial court or appellate court orders otherwise. If liquidation is enjoined or stayed pending appeal, the trial court retains jurisdiction to permit liquidation of an asset as necessary to prevent its loss or diminution pending the outcome of the appeal.

§186.205. Notice of State Trust Company Closing.

(a) As soon as reasonably practicable after initiation of the receivership proceeding, the receiver shall publish notice, in a newspaper of general circulation in each community where the state trust company´s home office or any additional trust office is located. The notice must state that:

(1) the state trust company has been closed for liquidation;

(2) clients and creditors must present their claims for payment on or before a specific date; and

(3) all safe deposit box holders and bailors of property left with the state trust company should remove their property not later than a specified date.

(b) A date that the receiver selects under Subsection (a):

(1) may not be earlier than the 121st day after the date of the notice; and

(2) must allow:

(A) the affairs of the state trust company to be wound up as quickly as feasible; and

(B) creditors, clients, and owners of property adequate time for presentation of claims, withdrawal of accounts, and redemption of property.

(c) The receiver may adjust the dates under Subsection (a) with the approval of the court and with or without republication of notice if additional time appears needed for those activities.

(d) As soon as reasonably practicable given the state of state trust company records and the adequacy of staffing, the receiver shall mail to each of the state trust company´s known clients, creditors, safe deposit box holders, and bailors of property left with the state trust company, at the mailing address shown on the state trust company´s records, an individual notice containing the information required in a notice under Subsection (a) and specific information pertinent to the account or property of the addressee.

(e) The receiver may determine the form and content of notices under this section.

§186.206. Inventory.

As soon as reasonably practicable given the state of state trust company records and the adequacy of staffing, the receiver shall prepare a comprehensive inventory of the state trust company´s assets for filing with the court. The inventory is open to inspection.

§186.207. Receiver´s Title and Priority.

(a) The receiver has the title to all the state trust company´s property, contracts, and rights of action, wherever located, beginning on the date the state trust company is closed for liquidation.

(b) The rights of the receiver have priority over a contractual lien or statutory landlord´s lien under Chapter 54, Property Code, judgment lien, attachment lien, or voluntary lien that arises after the date of the closing of the state trust company for liquidation.

(c) The filing or recording of a receivership order in a record office of this state gives the same notice that would be given by a deed, bill of sale, or other evidence of title filed or recorded by the state trust company in liquidation. The recording clerk shall index a recorded receivership order in the records to which the order relates.

§186.208. Rights Fixed.

The rights and liabilities of the state trust company in liquidation and of a client, creditor, officer, director, manager, managing participant, employee, shareholder, participant, participant-transferee, agent, or other person interested in the state trust company´s estate are fixed on the date of closing of the state trust company for liquidation except as otherwise directed by the court or as expressly provided otherwise by this subchapter or Subchapter D.

§186.209. Depositories.

(a) The receiver may deposit money collected on behalf of the state trust company estate in:

(1) the Texas Treasury Safekeeping Trust Company in accordance with procedures established by the comptroller; or

(2) one or more depository institutions in this state, the deposits of which are insured by the Federal Deposit Insurance Corporation or its successor, if the receiver, using sound financial judgment, determines that it would be advantageous to do so.

(b) If receivership money deposited in an account at a state bank exceeds the maximum insured amount, the receiver shall require the excess deposit to be adequately secured through pledge of securities or otherwise, without approval of the court. The depository bank may secure the deposits of the state trust company in liquidation on behalf of the receiver, notwithstanding any other provision of this subtitle.

§186.210. Pending Lawsuit.

(a) A judgment or order of a court of this state or of another jurisdiction in an action pending by or against the state trust company, rendered after the date the state trust company was closed for liquidation, is not binding on the receiver unless the receiver was made a party to the suit.

(b) Before the first anniversary of the date the state trust company was closed for liquidation, the receiver may not be required to plead to any suit pending against the state trust company in a court in this state on the date the state trust company was closed for liquidation and in which the receiver is a proper plaintiff or defendant.

(c) Sections 64.052, 64.053, and 64.056, Civil Practice and Remedies Code, do not apply to a state trust company estate being administered under this subchapter and Subchapter D.

§186.211. New Lawsuit.

(a) Except as otherwise provided by this section, the court in which a receivership proceeding is pending under this subchapter has exclusive jurisdiction to hear and determine all actions or proceedings instituted by or against the state trust company or receiver after the receivership proceeding begins.

(b) The receiver may file in any jurisdiction an ancillary suit that may be helpful to obtain jurisdiction or venue over a person or property.

(c) Exclusive venue lies in Travis County for an action or proceeding instituted against the receiver or the receiver´s employee, including an employee of the department, that asserts personal liability on the part of the receiver or employee.

§186.212. Obtaining Record or Other Property in Possession of Other Person.

(a) Each state trust company affiliate, officer, director, manager, managing participant, employee, shareholder, participant, participant-transferee, trustee, agent, servant, employee, attorney, attorney-in-fact, or correspondent shall immediately deliver to the receiver, without cost to the receiver, any record or other property of the state trust company or that relates to the business of the state trust company.

(b) If by contract or otherwise a record or other property that can be copied is the property of a person listed in Subsection (a), it shall be copied and the copy shall be delivered to the receiver. The owner shall retain the original until notification by the receiver that it is no longer required in the administration of the state trust company´s estate or until another time the court, after notice and hearing, directs. The copy is considered to be a record of the state trust company in liquidation under Section 186.225.

§186.213. Injunction in Aid of Liquidation.

(a) On application by the receiver, the court with or without notice may issue an injunction:

(1) restraining each state trust company officer, director, manager, managing participant, employee, shareholder, participant, participant-transferee, trustee, agent, servant, employee, attorney, attorney-in-fact, accountant or accounting firm, correspondent, or other person from transacting the state trust company´s business or wasting or disposing of its property; or

(2) requiring the delivery of the state trust company´s property or assets to the receiver subject to the further order of the court.

(b) At any time during a proceeding under this subchapter, the court may issue another injunction or order considered necessary or desirable to prevent:

(1) interference with the receiver or the proceeding;

(2) waste of the assets of the state trust company;

(3) the beginning or prosecution of an action;

(4) the obtaining of a preference, judgment, attachment, garnishment, or other lien; or

(5) the making of a levy against the state trust company or against its assets.

§186.214. Subpoena.

(a) The receiver may request the court ex parte to issue a subpoena to compel the attendance and testimony of a witness before the receiver and the production of a record relating to the receivership estate. For that purpose the receiver or the receiver´s designated representative may administer an oath or affirmation, examine a witness, or receive evidence. The court has statewide subpoena power and may compel attendance and production of a record before the receiver at the state trust company, the office of the receiver, or another location.

(b) A person served with a subpoena under this section may file a motion with the court for a protective order as provided by Rule 166b, Texas Rules of Civil Procedure. In a case of disobedience of a subpoena or the contumacy of a witness appearing before the receiver or the receiver´s designated representative, the receiver may request and the court may issue an order requiring the person subpoenaed to obey the subpoena, give evidence, or produce a record relating to the matter in question.

(1) reimbursement for mileage, in the amount for travel by a state employee, for traveling to or returning from a proceeding that is more than 25 miles from the witness´s residence; and

(2) a fee for each day or part of a day the witness is necessarily present as a witness in an amount set by the receiver with the approval of the court of not less than $10 a day and not more than an amount equal to the per diem travel allowance of a state employee.

(d) A payment of fees under Subsection (c) is an administrative expense.

(e) The receiver may serve the subpoena or have it served by the receiver´s authorized agent, a sheriff, or a constable. The sheriff´s or constable´s fee for serving a subpoena must be the same as the fee paid the sheriff or constable for similar services.

(f) A subpoena issued under this section to a financial institution is not subject to Section 59.006.

(g) On certification by the receiver under official seal, a record produced or testimony taken as provided by this section and held by the receiver is admissible in evidence in any case without proof of its correctness or other proof, except the certificate of the receiver that the record or testimony was received from the person producing the record or testifying. The certified record or a certified copy of the record is prima facie evidence of the facts it contains. This section does not limit another provision of this subchapter, Subchapter D, or another law that provides for the admission of evidence or its evidentiary value.

§186.215. Executory Contract; Oral Agreement.

(a) Not later than six months after the date the receivership proceeding begins, the receiver may terminate any executory contract to which the state trust company is a party or any obligation of the state trust company as a lessee. A lessor who receives notice of the receiver´s election to terminate the lease before the 60th day before the termination date is not entitled to rent or damages for termination, other than rent accrued to the date of termination.

(b) An agreement that tends to diminish or defeat the interest of the estate in a state trust company asset is not valid against the receiver unless the agreement:

(1) is in writing;

(2) was executed by the state trust company and any person claiming an adverse interest under the agreement, including the obligor, when the state trust company acquired the asset;

(3) was approved by the board of the state trust company or its designated committee, and the approval is reflected in the minutes of the board or committee; and

(4) has been continuously since its execution an official record of the state trust company.

§186.216. Preferences.

(a) A transfer of or lien on the property or assets of a state trust company is voidable by the receiver if the transfer or lien:

(1) was made or created after:

(A) four months before the date the state trust company is closed for liquidation; or

(B) one year before the date the state trust company is closed for liquidation if the receiving creditor was at the time an affiliate, officer, director, manager, managing participant, principal shareholder, or participant of the state trust company or an affiliate of the trust company;

(2) was made or created with the intent of giving to a creditor or depositor, or enabling a creditor or depositor to obtain, a greater percentage of the claimant´s debt than is given or obtained by another claimant of the same class; and

(3) is accepted by a creditor or depositor having reasonable cause to believe that a preference will occur.

(b) Each state trust company officer, director, manager, managing participant, employee, shareholder, participant, participant-transferee, trustee, agent, servant, employee, attorney-in-fact, or correspondent, or other person acting on behalf of the state trust company, who has participated in implementing a voidable transfer or lien, and each person receiving property or the benefit of property of the state trust company as a result of the voidable transfer or lien, is personally liable for the property or benefit received and shall account to the receiver for the benefit of the clients and creditors of the state trust company.

(c) The receiver may avoid a transfer of or lien on the property or assets of a state trust company that a client, creditor, shareholder, participant, or participant-transferee of the state trust company could have avoided and may recover the property transferred or its value from the person to whom it was transferred or from a person who has received it unless the transferee or recipient was a bona fide holder for value before the date the state trust company was closed for liquidation.

§186.217. Employees of Receiver.

The receiver may employ agents, legal counsel, accountants, appraisers, consultants, and other personnel the receiver considers necessary to assist in the performance of the receiver´s duties. The receiver may use personnel of the department if the receiver considers the use to be advantageous or desirable. The expense of employing those persons is an administrative expense.

§186.218. Disposal of Property; Settling of Claim.

(a) In liquidating a state trust company, the receiver on order of the court entered with or without hearing may:

(1) sell all or part of the property of the state trust company;

(2) borrow money and pledge all or part of the assets of the state trust company to secure the debt created, except that the receiver may not be held personally liable to repay borrowed funds;

(3) compromise or compound a doubtful or uncollectible debt or claim owed by or owing to the state trust company; and

(4) enter another agreement on behalf of the state trust company that the receiver considers necessary or proper to the management, conservation, or liquidation of its assets.

(b) If the amount of a debt or claim owed by or owing to the state trust company or the value of an item of property of the trust company does not exceed $20,000, excluding interest, the receiver may compromise or compound the debt or claim or sell the property on terms the receiver considers to be in the best interest of the state trust company estate without obtaining the approval of the court.

(c) With the approval of the court, the receiver may sell or offer or agree to sell an asset of the state trust company, other than a fiduciary asset, to a depositor or creditor of the state trust company. Payment may be in whole or in part out of distributions payable to the purchasing creditor or depositor on account of an approved claim against the state trust company´s estate. On application by the receiver, the court may designate one or more representatives to act for certain clients or creditors as a class in the purchase, holding, and management of assets purchased by the class under this section, and the receiver may with the approval of the court advance the expenses of the appointed representative against the security of the claims of the class.

§186.219. Court Order; Notice and Hearing.

If the court requires notice and hearing before entering an order, the court shall set the time and place of the hearing and prescribe whether the notice is to be given by service on specific parties, by publication, or by a combination of those methods. The court may not enter an order requested by a person other than the receiver without notice to the receiver and an opportunity for the receiver to be heard.

§186.220. Receiver´s Reports; Expenses.

(a) The receiver shall file with the court:

(1) a quarterly report showing the operation, receipts, expenditures, and general condition of the state trust company in liquidation; and

(2) a final report regarding the liquidated state trust company showing all receipts and expenditures and giving a full explanation and a statement of the disposition of all assets of the state trust company.

(b) The receiver shall pay all administrative expenses out of money or other assets of the state trust company. Each quarter the receiver shall swear to and submit to the court an itemized report of those expenses. The court shall approve the report unless an objection is filed before the 11th day after the date it is submitted. An objection may be made only by a party in interest and must specify each item objected to and the ground for the objection. The court shall set the objection for hearing and notify the parties of this action. The objecting party has the burden of proof to show that the item objected to is improper, unnecessary, or excessive.

(c) The court may prescribe whether the notice of the receiver´s report is to be given by service on specific parties, by publication, or by a combination of those methods.

§186.221. Court-ordered Audit.

(a) The court may order an audit of the books and records of the receiver that relate to the receivership. A report of an audit ordered under this section shall be filed with the court. The receiver shall make the books and records relating to the receivership available to the auditor as required by the court order.

(b) The receiver shall pay the expenses of an audit ordered under this section as an administrative expense.

§186.222. Safe Deposits and Other Bailments.

(a) A contract between the state trust company and another person for bailment, of deposit for hire, or for the lease of a safe, vault, or box ceases on the date specified for removal of property in the notices that were published and mailed or a later date approved by the receiver or the court. A person who has paid rental or storage charges for a period extending beyond the date designated for removal of property has a claim against the state trust company estate for a refund of the unearned amount paid.

(b) If the property is not removed by the date the contract ceases, the receiver shall inventory the property. In making the inventory, the receiver may open a safe, vault, or box, or any package, parcel, or receptacle, in the custody or possession of the receiver. The property shall be marked to identify, to the extent possible, its owner or the person who left it with the state trust company. After all property belonging to others that is in the receiver´s custody and control has been inventoried, the receiver shall compile a master list that is divided for each office of the state trust company that received property that remains unclaimed. The receiver shall publish, in a newspaper of general circulation in each community in which the state trust company had an office that received property that remains unclaimed, the list and the names of the owners of the property as shown in the state trust company´s records. The published notice shall specify a procedure for claiming the property unless the court, on application of the receiver, approves an alternate procedure.

§186.223. Fiduciary Activities.

(a) As soon after beginning the receivership proceeding as is practicable, the receiver shall:

(1) terminate all fiduciary positions the state trust company holds;

(2) surrender all property held by the state trust company as a fiduciary; and

(3) settle the state trust company´s fiduciary accounts.

(b) The receiver shall release all segregated and identifiable fiduciary property held by the state trust company to successor fiduciaries.

(c) With the approval of the court, the receiver may sell the administration of all or substantially all remaining fiduciary accounts to one or more successor fiduciaries on terms that appear to be in the best interest of the state trust company´s estate and the persons interested in the fiduciary accounts.

(d) If commingled fiduciary money held by the state trust company as trustee is insufficient to satisfy all fiduciary claims to the commingled money, the receiver shall distribute commingled money pro rata to all fiduciary claimants of commingled money based on their proportionate interests after payment of administrative expenses related solely to the fiduciary claims. The fictional tracing rule does not apply.

(e) The receiver may require a fiduciary claimant to file a proof of claim if the records of the state trust company are insufficient to identify the claimant´s interest.

§186.224. Disposition and Maintenance of Records.

(a) On approval by the court, the receiver may dispose of records of the state trust company in liquidation that are obsolete and unnecessary to the continued administration of the receivership proceeding.

(b) The receiver may devise a method for the effective, efficient, and economical maintenance of the records of the state trust company and of the receiver´s office. The methods may include maintaining those records on any medium approved by the records management division of the Texas State Library.

(c) To maintain the records of the liquidated state trust company after the closing of the receivership proceeding, the receiver may reserve assets of an estate, deposit them in an account, and use them for maintenance, storage, and disposal of records in closed receivership estates.

(d) Records of a liquidated state trust company are not government records for any purpose, including Chapter 552, Government Code, but shall be preserved and disposed of as if they were records of the department under Chapter 441, Government Code. Those records are confidential as provided by:

(1) Section 59.006;

(2) Subchapter D, Chapter 181; and

(3) rules adopted under this subtitle.

§186.225. Records Admitted.

(a) A record of a state trust company in liquidation obtained by the receiver and held in the course of the receivership proceeding or a certified copy of the record under the official seal of the receiver is admissible in evidence in all cases without proof of correctness or other proof, except the certificate of the receiver that the record was received from the custody of the state trust company or found among its effects.

(b) The receiver may certify the correctness of a record of the receiver´s office, including a record described by Subsection (a), and may certify any fact contained in the record. The record is admissible in evidence in all cases in which the original would be evidence.

(d) A copy of an original record or another record that is maintained on a medium approved by the records management division of the Texas State Library, within the scope of this section, and produced by the receiver or the receiver´s authorized representative under this section:

(1) has the same effect as the original record; and

(2) may be used the same as the original record in a judicial or administrative proceeding in this state.

§186.226. Resumption of Business.

(a) A state trust company closed under Section 186.201 may not be reopened without the approval of the banking commissioner unless a contest of liquidation under Section 186.204 is finally resolved adversely to the banking commissioner and the court authorizes its reopening.

(b) The banking commissioner may place temporary limits on the right of withdrawals by, or payments to, individual clients and creditors of a state trust company reopened under this section, in accordance with applicable law.

(c) As a depositor or creditor of a reopened state trust company, this state or a political subdivision of this state may agree to temporary limits that the banking commissioner places on payments or withdrawals.

§186.227. Assets Discovered after Close of Receivership.

(a) The banking commissioner shall report to the court discovery of an asset having value that:

(1) the banking commissioner discovers after the receivership was closed by final order of the court; and

(2) was abandoned as worthless or unknown during receivership.

(b) The court may reopen the receivership proceeding for continued liquidation if the value of the after-discovered assets justifies the reopening.

(c) If the banking commissioner suspects that the information concerning after-disclosed assets may have been intentionally or fraudulently concealed, the banking commissioner shall notify appropriate civil and criminal authorities to determine any applicable penalties.

Subchapter D. Claims Against Receivership Estate

§186.301. Filing Claim.

(a) This section applies only to a claim by a person, other than a shareholder, participant, or participant-transferee acting in that capacity, who has a claim against a state trust company in liquidation, including a claimant with a secured claim or a claimant under a fiduciary relationship that has been ordered by the receiver to file a claim pursuant to Section 186.223.

(b) To receive payment of a claim, the person must present proof of the claim to the receiver:

(1) at a place specified by the receiver; and

(2) within the period specified by the receiver under Section 186.205.

(d) A claim that is not filed within the period specified by the receiver may not participate in a distribution of the assets by the receiver, except that, subject to court approval, the receiver may accept a claim filed not later than the 180th day after the date notice of the claimant´s right to file a proof of claim is mailed to the claimant.

(e) A claim accepted under this section and approved is subordinate to an approved claim of a general creditor.

(f) Interest does not accrue on a claim after the date the state trust company is closed for liquidation.

§186.302. Proof of Claim.

(a) A proof of claim must be in writing, be signed by the claimant, and include:

(1) a statement of the claim;

(2) a description of the consideration for the claim;

(3) a statement of whether collateral is held or a security interest is asserted against the claim and, if so, a description of the collateral or security interest;

(4) a statement of any right of priority of payment for the claim or other specific right asserted by the claimant;

(5) a statement of whether a payment has been made on the claim and, if so, the amount and source of the payment, to the extent known by the claimant;

(6) a statement that the amount claimed is justly owed by the state trust company in liquidation to the claimant; and

(7) any other matter that is required by the court.

(b) The receiver may designate the form of the proof of claim. A proof of claim must be filed under oath unless the oath is waived by the receiver. A proof of claim filed with the receiver is considered filed in an official proceeding for purposes of Chapter 37, Penal Code.

(c) If a claim is founded on a written instrument, the original instrument, unless lost or destroyed, must be filed with the proof of claim. After the instrument is filed, the receiver may permit the claimant to substitute a copy of the instrument until the final disposition of the claim. If the instrument is lost or destroyed, a statement of that fact and of the circumstances of the loss or destruction must be filed under oath with the claim.

§186.303. Judgment as Proof of Claim.

(a) A judgment entered against a state trust company in liquidation before the date the state trust company was closed for liquidation may not be given higher priority than a claim of an unsecured creditor unless the judgment creditor in a proof of claim proves the allegations supporting the judgment to the receiver´s satisfaction.

(b) A judgment against the state trust company taken by default or by collusion before the date the state trust company was closed for liquidation may not be considered as conclusive evidence of the liability of the state trust company to the judgment creditor or of the amount of damages to which the judgment creditor is entitled.

(c) A judgment against the state trust company entered after the date the state trust company was closed for liquidation may not be considered as evidence of liability or of the amount of damages.

§186.304. Secured Claim.

(a) The owner of a secured deposit may file a claim as a creditor against a state trust company in liquidation. The value of security shall be determined under supervision of the court by converting the security into money.

(b) The owner of a secured claim against a state trust company in liquidation may:

(1) surrender the security and file a claim as a general creditor; or

(2) apply the security to the claim and discharge the claim.

(c) If the owner applies the security and discharges the claim under Subsection (b), any deficiency shall be treated as a claim against the general assets of the state trust company on the same basis as a claim of an unsecured creditor. The amount of the deficiency shall be determined as provided by Section 186.305, except that if the amount of the deficiency has been adjudicated by a court in a proceeding in which the receiver has had notice and an opportunity to be heard, the court´s decision is conclusive as to the amount.

(d) The value of security held by a secured creditor shall be determined under supervision of the court by:

(1) converting the security into money according to the terms of the agreement under which the security was delivered to the creditor; or

(2) agreement, arbitration, compromise, or litigation between the creditor and the receiver.

§186.305. Unliquidated or Undetermined Claim.

(a) A claim based on an unliquidated or undetermined demand shall be filed within the period provided by Subchapter C for the filing of a claim. The claim may not share in any distribution to claimants until the claim is definitely liquidated, determined, and allowed. After the claim is liquidated, determined, and allowed, the claim shares ratably with the claims of the same class in all subsequent distributions.

(b) For the purposes of this section, a demand is considered unliquidated or undetermined if the right of action on the demand accrued while a state trust company was closed for liquidation and the liability on the demand has not been determined or the amount of the demand has not been liquidated.

(c) If the receiver in all other respects is in a position to close the receivership proceeding, the proposed closing is sufficient grounds for the rejection of any remaining claim based on an unliquidated or undetermined demand. The receiver shall notify the claimant of the intention to close the proceeding. If the demand is not liquidated or determined before the 61st day after the date of the notice, the receiver may reject the claim.

§186.306. Set-Off.

(a) Mutual credits and mutual debts shall be set off and only the balance allowed or paid, except that a set-off may not be allowed in favor of a person if:

(1) the obligation of a state trust company to the person on the date the state trust company was closed for liquidation did not entitle the person to share as a claimant in the assets of the state trust company;

(2) the obligation of the state trust company to the person was purchased by or transferred to the person after the date the state trust company was closed for liquidation or for the purpose of increasing set-off rights; or

(3) the obligation of the person or the state trust company is as a trustee or fiduciary.

(b) On request, the receiver shall provide a person with an accounting statement identifying each debt that is due and payable. A person who owes a state trust company an amount that is due and payable against which the person asserts set-off of mutual credits that may become due and payable from the state trust company in the future shall promptly pay to the receiver the amount due and payable. The receiver shall promptly refund, to the extent of the person´s prior payment, mutual credits that become due and payable to the person by the state trust company in liquidation.

§186.307. Action on Claim.

(a) Not later than six months after the last day permitted for the filing of claims or a later date allowed by the court, the receiver shall accept or reject in whole or in part each claim filed against the state trust company in liquidation, except for an unliquidated or undetermined claim governed by Section 186.305. The receiver shall reject a claim if the receiver doubts its validity.

(b) The receiver shall mail written notice to each claimant, specifying the disposition of the person´s claim. If a claim is rejected in whole or in part, the receiver in the notice shall specify the basis for rejection and advise the claimant of the procedures and deadline for appeal.

(c) The receiver shall send each claimant a summary schedule of approved and rejected claims by priority class and notify the claimant:

(1) that a copy of a schedule of claims disposition including only the name of the claimant, the amount of the claim allowed, and the amount of the claim rejected is available on request; and

(2) of the procedure and deadline for filing an objection to an approved claim.

(d) The receiver or an agent or employee of the receiver, including an employee of the department, is not liable, and a cause of action may not be brought against the person, for an act or omission of the person relating to the adjustment, negotiation, or settlement of a claim.

§186.308. Objection to Approved Claim.

The receiver with court approval shall set a deadline for an objection to an approved claim. On or before that date a depositor, creditor, other claimant, shareholder, participant, or participant-transferee of the state trust company may file an objection to an approved claim. The objection shall be heard and determined by the court. If the objection is sustained, the court shall direct an appropriate modification of the schedule of claims.

§186.309. Appeal of Rejected Claim.

(a) The receiver´s rejection of a claim may be appealed in the court in which the receivership proceeding is pending. The appeal must be brought within three months after the date of service of notice of the rejection.

(b) If the appeal is timely brought, review is de novo as if it were an action originally filed in the court, and is subject to the rules of procedure and appeal applicable to civil cases. An action to appeal rejection of a claim by the receiver is separate from the receivership proceeding, and may not be initiated by a claimant intervening in the receivership proceeding.

§186.310. Payment of Claim.

(a) Except as expressly provided otherwise by this subchapter or Subchapter C, without the approval of the court the receiver may not make a payment on a claim, other than a claim for an obligation incurred by the receiver for administrative expenses.

(b) The banking commissioner shall deposit in one or more banks located in this state all money available for the benefit of nonclaiming depositors and creditors. The banking commissioner shall pay the depositors or creditors on demand any amount held for their benefit.

(1) all objections have been heard and decided as provided by Section 186.308;

(2) the time for filing appeals has expired as provided by Section 186.309;

(3) money has been made available to provide for the payment of all nonclaiming depositors and creditors in accordance with Subsection (b); and

(4) a proper reserve is established for the pro rata payment of:

(A) rejected claims that have been appealed; and

(B) any claims based on unliquidated or undetermined demands governed by Section 186.305.

(d) As soon as practicable after the determination of all objections, appeals, and claims based on previously unliquidated or undetermined demands governed by Section 186.305 and money has been made available to provide for the payment of all nonclaiming depositors and creditors in accordance with Subsection (b), the receiver shall distribute the assets of the state trust company in satisfaction of approved claims other than claims asserted in a person´s capacity as a shareholder, participant, or participant-transferee.

§186.311. Priority of Claims Against Insured State Trust Company.

The distribution of assets from the estate of a state trust company the trust deposits of which are insured by the Federal Deposit Insurance Corporation or its successor shall be made in the same order of priority as assets would be distributed on liquidation or purchase of assets and assumption of liabilities of a national bank under federal law.

§186.312. Priority of Claims Against Uninsured State Trust Company.

(a) The priority of distribution of assets from the estate of a state trust company the trust deposits of which are not insured by the Federal Deposit Insurance Corporation or its successor shall be in accordance with the order of each class as provided by this section. Every claim in each class shall be paid in full, or adequate money shall be retained for that payment, before a member of the next class may receive any payment. A subclass may not be established within a class, except for a preference or subordination within a class expressly created by contract or other instrument or in the certificate of formation.

(b) Assets shall be distributed in the following order of priority:

(1) administrative expenses;

(2) approved claims of secured trust deposits to the extent of the value of the security as provided by Section 186.304(a);

(3) approved claims of secured creditors to the extent of the value of the security as provided by Section 186.304(b);

(4) approved claims by beneficiaries of insufficient commingled fiduciary money or missing fiduciary property and approved claims of clients of the state trust company;

(5) other approved claims of general creditors not falling within a higher priority under this section, including unsecured claims for taxes and debts due the federal government or a state or local government;

(6) approved claims of a type described by Subdivisions (1)-(5) that were not filed within the period prescribed by this subchapter; and

(7) claims of capital note or debenture holders or holders of similar obligations and proprietary claims of shareholders, participants, participant-transferees, or other owners according to the terms established by issue, class, or series.

(c) Subject to Sections 186.310 and 186.313, the banking commissioner may make a ratable distribution to approved claimants within a particular class or priority if:

(1) all timely filed and approved claims of a higher priority have been satisfied; and

(2) there is insufficient money to fully satisfy all of those claims, after reserving money for administrative expenses as necessary.

§186.313. Excess Assets.

(a) If state trust company assets remain after the receiver has provided for unclaimed distributions and all of the liabilities of the state trust company in liquidation, the receiver shall distribute the remaining assets to the shareholders or participants of the state trust company.

(b) If the remaining assets are not liquid or if they otherwise require continuing administration, the receiver may call a meeting of the shareholders or participants and participant-transferees of the state trust company. The receiver shall give notice of the meeting:

(1) in a newspaper of general circulation in the county where the home office of the state trust company was located; and

(2) by written notice to the shareholders or participants and participant-transferees of record at their last known addresses.

(c) At the meeting, the shareholders or participants shall appoint one or more agents to take over the affairs to continue the liquidation for the benefit of the shareholders or participants and participant-transferees. Voting privileges are governed by the state trust company´s bylaws and certificate of formation. If a quorum cannot be obtained at the meeting, the banking commissioner shall appoint an agent. An agent appointed under this subsection shall execute and file with the court a bond approved by the court, conditioned on the faithful performance of all the duties of the trust.

(d) Under order of the court the receiver shall transfer and deliver to one or more agents for continued liquidation under the court´s supervision all assets of the state trust company remaining in the receiver´s hands. The court shall discharge the receiver from further liability to the state trust company and its clients, creditors, shareholders, participants, and participant-transferees.

(e) The state trust company may not resume business and the charter of the state trust company is void on the date the court issues the order directing the receiver to transfer and deliver the remaining assets of the state trust company to one or more agents.

§186.314. Unclaimed Property.

After completion of the liquidation, any unclaimed property remaining with the receiver shall be delivered to the comptroller as provided by Chapter 74, Property Code.

CHAPTER 187. MULTISTATE TRUST BUSINESS (TITLE 3; SUBTITLE F)

Subchapter A. General Provisions

§187.001. Definitions.

(a) In this chapter:

(1) "Acquire" means an act that results in direct or indirect control by an out-of-state trust company of a state trust institution, including an act that causes the company to:

(A) merge with the state trust institution;

(B) assume direct or indirect ownership of a controlling interest in any class of voting shares of the state trust institution; or

(2) "Bank" means:

(A) a state bank chartered under Chapter 32 or the laws of another state;

(B) a national bank chartered under federal law; or

(C) a foreign bank that is organized under the laws of a territory of the United States, Puerto Rico, Guam, American Samoa, or the Virgin Islands and that has its deposits insured by the Federal Deposit Insurance Corporation.

(3) "Branch" has the meaning assigned by Section 31.002(a).

(4) "Credit union" means a credit union chartered under Chapter 122, the laws of another state, or federal law.

(5) "De novo trust office" means a trust office located in a host state that:

(A) is originally established by a trust company as a trust office; and

(B) does not become a trust office of the trust company as a result of an acquisition or conversion of another trust institution.

(6) "Foreign bank" has the meaning assigned by Section 1(b)(7), International Banking Act (12 U.S.C. Section 3101(7)), as amended.

(7) "Home state" means:

(A) with respect to a federally chartered trust institution or a foreign bank, the state in which the institution maintains its principal office; and

(B) with respect to another trust institution, the state that chartered the institution.

(8) "Home state regulator" means the supervisory agency with primary responsibility for chartering and supervising a trust company.

(9) "Host state" means a state, other than the home state of a trust company, or a foreign country in which the trust company maintains or seeks to acquire or establish an office.

(10) "Office" means, with respect to a trust company, the principal office, a trust office, or a representative trust office.

(11) "Out-of-state trust company" means a trust company:

(A) whose home state is another state; or

(B) that is chartered under the laws of a foreign country.

(12) "Principal office" means:

(A) with respect to a state trust company, its home office as defined by Section 181.002(a); and

(B) with respect to a bank, savings bank, savings association, foreign bank, or out-of-state trust company, its main office or principal place of business in the United States.

(13) "Representative trust office" means an office at which a trust company has been authorized by the banking commissioner to engage in activities other than acting as a fiduciary as provided by Subchapter C.

(14) "Savings association" means a savings and loan association chartered under Chapter 62, the laws of another state, or federal law.

(15) "Savings bank" means a savings bank chartered under Chapter 92, the laws of another state, or federal law.

(16) "State" means any state of the United States, the District of Columbia, any territory of the United States, Puerto Rico, Guam, American Samoa, the Trust Territory of the Pacific Islands, the Virgin Islands, and the Northern Mariana Islands.

(17) "State trust institution" means a trust institution whose home state is this state.

(18) "Supervisory agency" means:

(A) an agency of another state or a foreign country with primary responsibility for chartering and supervising a trust institution; and

(B) with respect to a federally chartered trust institution or foreign bank, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, the Office of Thrift Supervision, or the National Credit Union Administration, as applicable.

(19) "Trust company" means a state trust company or a company chartered under the laws of another state or a foreign country to conduct a trust business that is not a bank, credit union, savings association, savings bank, or foreign bank.

(20) "Trust institution" means a bank, credit union, foreign bank, savings association, savings bank, or trust company that is authorized by its charter to conduct a trust business.

(21) "Trust office" means an office, other than the principal office, at which a trust company is licensed by the banking commissioner to conduct a trust business.

(b) The definitions provided by Section 181.002(a) apply to this chapter to the extent not inconsistent with this chapter.

(d) The finance commission by rule may adopt other definitions to accomplish the purposes of this chapter.

§187.002. Companies Authorized to Conduct a Trust Business.

(a) A company may not conduct a trust business in this state unless the company is a trust institution and is:

(1) a state trust company chartered pursuant to this subtitle;

(2) a bank, savings association, savings bank, or credit union that maintains its principal office or a branch in this state in accordance with governing law, or another office in this state with the power to conduct a trust business to the extent permitted by rule;

(3) a trust company chartered under the laws of another state or a foreign country that has a trust office in this state licensed by the banking commissioner pursuant to this chapter; or

(4) a foreign bank with an office in this state that is authorized to act as a fiduciary pursuant to Section 204.106.

(b) Notwithstanding Subsection (a), a trust institution that does not maintain a principal office, branch, or trust office in this state may act as a fiduciary in this state to the extent permitted by Subchapter A, Chapter 505, Estates Code.

(c) A company does not engage in the trust business in this state in a manner requiring a charter or license under this subtitle by engaging in an activity identified in Section 182.021, except that the registration requirements of Section 187.202 may apply to a trust representative office engaging in the activity.

§187.003. Interstate Trust Business of State Trust Company.

Subject to the approval of the banking commissioner pursuant to Section 182.203, a state trust company may engage in the trust business in another state or a foreign country at a trust office or a trust representative office to the extent permitted by and subject to applicable laws of the state or foreign country.

§187.004. Trust Business of Out-of-State Trust Company.

(a) An out-of-state trust company that establishes or maintains an office in this state under this chapter may conduct any activity at the office that would be authorized under the laws of this state for a state trust company to conduct at the office.

(b) Before establishing an office in this state, an out-of-state trust company must comply with Section 201.102.

§187.005. Designation of Trustee and Governing Law.

(a) Unless another law restricts the designation of trustee, a person residing in this state may designate a trust institution to act as a fiduciary on behalf of the person.

(b) Unless another law specifies governing law, if a trust or its subject matter bears a reasonable relation to this state and also to another state or a foreign country, a trust institution and its affected client may agree that the law of this state or of the other state or country governs their rights and duties, including the law of a state or a foreign country where the affected client resides or where the trust institution has its principal office.

§187.006. Taxation.

An out-of-state trust institution doing business in this state is subject to the franchise tax to the extent provided by Chapter 171, Tax Code.

§187.007. Severability.

The provisions of this chapter or applications of those provisions are severable as provided by Section 312.013, Government Code.

Subchapter B. Out-of-state Trust Company Trust Office

§187.101. Trust Offices in This State.

An out-of-state trust company may engage in a trust business at an office in this state only if it establishes and maintains a trust office in this state as permitted by this subchapter.

§187.102. Establishing an Interstate Trust Office.

(a) An out-of-state trust company that does not operate a trust office in this state may not establish and maintain a de novo trust office in this state unless:

(1) a state trust company would be permitted to establish a de novo trust office in the home state or foreign country of the out-of-state trust company; and

(2) a bank whose home state is this state would be permitted to establish a de novo branch in the home state or foreign country of the out-of-state trust company.

(b) Subject to Subsection (a), a de novo trust office may be established in this state under this section through the acquisition of a trust office in this state of an existing trust institution.

§187.103. Acquiring an Interstate Trust Office.

(a) An out-of-state trust company that does not operate a trust office in this state and that meets the requirements of this subchapter may acquire an existing trust institution in this state and after the acquisition operate and maintain the acquired institution as a trust office in this state, subject to Subchapter A, Chapter 183, or Subchapter A, Chapter 33, if applicable.

(b) An out-of-state trust institution that does not operate a trust office in this state may not establish and maintain a trust office in this state through the acquisition of a trust office of an existing trust institution except as provided by Section 187.102. This section does not affect or prohibit a trust institution or other person from chartering a state trust company pursuant to Section 182.001.

§187.104. Requirement of Notice.

An out-of-state trust company desiring to establish and maintain a de novo trust office or acquire an existing trust institution in this state and to operate and maintain the acquired institution as a trust office pursuant to this subchapter shall provide written notice of the proposed transaction to the banking commissioner on or after the date on which the out-of-state trust company applies to the home state regulator for approval to establish and maintain or acquire the trust office. The filing of the notice shall be preceded or accompanied by a copy of the resolution adopted by the board authorizing the additional office and the filing fee, if any, prescribed by law. The written notice must contain sufficient information to enable an informed decision under Section 187.105.

§187.105. Conditions for Approval.

(a) A trust office of an out-of-state trust company may be acquired or established in this state under this subchapter if:

(1) the out-of-state trust company confirms in writing to the banking commissioner that while it maintains a trust office in this state, it will comply with all applicable laws of this state;

(2) the out-of-state trust company provides satisfactory evidence to the banking commissioner of compliance with Section 201.102 and the applicable requirements of its home state regulator for acquiring or establishing and maintaining the office;

(3) all filing fees have been paid as required by law; and

(4) the banking commissioner finds that:

(A) applicable conditions of Section 187.102 or 187.103 have been met;

(B) if a state bank is being acquired, the applicable requirements of Subchapter A, Chapter 33 have been met, or if a state trust company is being acquired, the applicable requirements of Subchapter A, Chapter 183 have been met; and

(b) The banking commissioner may condition approval of a trust office on compliance by the out-of-state trust company with any requirement applicable to formation of a state trust company pursuant to Sections 182.003(b) and 182.007.

(c) If all requirements of Subsection (a) have been met, the out-of-state trust company may commence business at the trust office on the 61st day after the date the banking commissioner notifies the company that the notice required by Section 187.104 has been accepted for filing, unless the banking commissioner specifies an earlier or later date.

(d) The 60-day period of review may be extended by the banking commissioner on a determination that the written notice raises issues that require additional information or additional time for analysis. If the period of review is extended, the out-of-state trust company may establish the office only on prior written approval by the banking commissioner.

(e) If all requirements of Subsection (a) have been met, the banking commissioner may otherwise deny approval of the office if the banking commissioner finds that the out-of-state trust company lacks sufficient financial resources to undertake the proposed expansion without adversely affecting its safety or soundness or that the proposed office is contrary to the public interest. In acting on the notice, the banking commissioner shall consider the views of the appropriate supervisory agencies.

§187.106. Additional Trust Offices.

An out-of-state trust company that maintains a trust office in this state under this subchapter may establish or acquire additional trust offices or representative trust offices in this state to the same extent that a state trust company may establish or acquire additional offices in this state pursuant to the procedures for establishing or acquiring the offices set forth in Section 182.203.

Subchapter C. Out-of-State Trust Institution Representative Trust Office

§187.201. Representative Trust Office Business.

(a) An out-of-state trust institution may establish a representative trust office as permitted by this subchapter to:

(1) solicit, but not accept, fiduciary appointments;

(2) act as a fiduciary in this state to the extent permitted for a foreign corporate fiduciary by Subchapter A, Chapter 505, Estates Code;

(3) perform ministerial duties with respect to existing clients and accounts of the trust institution;

(4) engage in an activity permitted by Section 182.021; and

(5) to the extent the office is not acting as a fiduciary:

(A) receive for safekeeping personal property of every description;

(B) act as assignee, bailee, conservator, custodian, escrow agent, registrar, receiver, or transfer agent; and

(b) Except as provided by Subsection (a), a trust representative office may not act as a fiduciary or otherwise engage in the trust business in this state.

(c) Subject to the requirements of this subchapter, an out-of-state trust institution may establish and maintain representative trust offices anywhere in this state.

§187.202. Registration of Representative Trust Office.

(a) Except as provided by Subsection (e) with respect to a credit union, a savings association, or a savings bank, an out-of-state trust institution that does not maintain a branch or trust office in this state and that desires to establish or acquire and maintain a representative trust office shall:

(1) file a notice on a form prescribed by the banking commissioner, setting forth:

(A) the name of the out-of-state trust institution;

(B) the location of the proposed office; and

(2) pay the filing fee, if any, prescribed by law; and

(3) submit a copy of the resolution adopted by the board authorizing the representative trust office and a copy of the trust institution´s registration filed with the secretary of state pursuant to Section 201.102.

(b) The notificant may commence business at the representative trust office on the 31st day after the date the banking commissioner receives the notice unless the banking commissioner specifies an earlier or later date.

(c) The 30-day period of review may be extended by the banking commissioner on a determination that the written notice raises issues that require additional information or additional time for analysis. If the period of review is extended, the out-of-state trust institution may establish the representative trust office only on prior written approval by the banking commissioner.

(d) The banking commissioner may deny approval of the representative trust office if the banking commissioner finds that the notificant lacks sufficient financial resources to undertake the proposed expansion without adversely affecting its safety or soundness or that the proposed office would be contrary to the public interests. In acting on the notice, the banking commissioner shall consider the views of the appropriate supervisory agencies.

(e) A credit union, savings association, or savings bank that does not maintain a branch in this state and desires to establish or acquire and maintain a representative trust office shall comply with this section, except that the notice required by Subsection (a) must be filed with, and the duties and responsibilities of the banking commissioner under Subsections (b)-(d) shall be performed by:

(1) the Texas credit union commissioner, with respect to a credit union; or

(2) the Texas savings and mortgage lending commissioner, with respect to a savings association or savings bank.

(f) An out-of-state trust institution that fails to register as required by this section is subject to Subchapter C, Chapter 185.

Subchapter D. Supervision of Out-of-State Trust Company

§187.301. Cooperative Agreements; Fees.

(a) To carry out the purposes of this subtitle, the banking commissioner may:

(1) enter into cooperative, coordinating, or information sharing agreements with another supervisory agency or an organization affiliated with or representing one or more supervisory agencies;

(2) with respect to periodic examination or other supervision or investigation, accept reports of examination or investigation by, and reports submitted to, another supervisory agency in lieu of conducting examinations or investigations or receiving reports as might otherwise be required or permissible under this subtitle;

(3) enter into contracts with another supervisory agency having concurrent regulatory or supervisory jurisdiction to engage the services of the agency for reasonable compensation to assist with the banking commissioner´s performance of official duties under this subtitle or other law, or to provide services to the agency for reasonable compensation in connection with the agency´s performance of official duties under law, except that Chapter 2254, Government Code, does not apply to those contracts;

(4) enter into joint examinations or joint enforcement actions with another supervisory agency having concurrent regulatory or supervisory jurisdiction, except that the banking commissioner may independently take action under Section 187.305 if the banking commissioner determines that the action is necessary to carry out the banking commissioner´s responsibilities under this subtitle or to enforce compliance with the laws of this state; and

(5) assess supervisory and examination fees to be paid by an out-of-state trust company that maintains one or more offices in this state in connection with the banking commissioner´s performance of duties under this subtitle.

(b) Supervisory or examination fees assessed by the banking commissioner in accordance with this subtitle may be shared with another supervisory agency or an organization affiliated with or representing one or more supervisory agencies in accordance with an agreement between the banking commissioner and the agency or organization. The banking commissioner may also receive a portion of supervisory or examination fees assessed by another supervisory agency in accordance with an agreement between the banking commissioner and the agency.

§187.302. Examinations; Periodic Reports.

(a) To the extent consistent with Section 187.301, the banking commissioner may make examinations of a trust office or trust representative office established and maintained in this state by an out-of-state trust company pursuant to this chapter as the banking commissioner considers necessary to determine whether the office is being operated in compliance with the laws of this state and in accordance with safe and sound fiduciary practices. Sections 181.104-181.106 apply to the examinations.

(b) The finance commission may by rule prescribe requirements for periodic reports regarding a trust office or trust representative office in this state. The required reports must be provided by the trust institution maintaining the office. Reporting requirements under this subsection must be appropriate for the purpose of enabling the banking commissioner to discharge the responsibilities of the banking commissioner under this chapter.

§187.303. Interpretive Statements and Opinions.

(a) Subject to Subsection (b), to encourage the effective coordination and implementation of home state laws and host state laws with respect to interstate trust business, the banking commissioner, directly or through a deputy banking commissioner or department attorney in the manner provided by Sections 181.101 and 181.102, and with the effect provided by Section 181.103, may issue:

(1) an interpretive statement for the general guidance of trust institutions in this state and the public; or

(2) an opinion interpreting or determining the applicability of the laws of this state to the trust business and the operation of a branch, trust office, or another office in this state of an out-of-state trust institution, or in other states by state trust companies.

(b) With respect to the trust business of a credit union, savings association, or savings bank, the duties and responsibilities of the banking commissioner under Subsection (a) shall be performed by:

(1) the Texas credit union commissioner, with respect to a credit union; or

(2) the Texas savings and mortgage lending commissioner, with respect to a savings association or savings bank.

§187.304. Confidential Information.

Information obtained directly or indirectly by the banking commissioner relative to the financial condition or business affairs of a trust institution, other than the public portions of a report of condition or income statement, or a present, former, or prospective shareholder, participant, officer, director, manager, affiliate, or service provider of the trust institution, whether obtained through application, examination, or otherwise, and each related file or record of the department is confidential and may not be disclosed by the banking commissioner or an employee of the department except as expressly provided by Subchapter D, Chapter 181.

§187.305. Enforcement; Appeals.

(a) If the banking commissioner determines that an out-of-state trust company has violated this subtitle or other applicable law of this state, the banking commissioner may take all enforcement actions the banking commissioner would be empowered to take if the out-of-state trust company were a state trust company, except that the banking commissioner shall promptly give notice to the home state regulator of each enforcement action to be taken against an out-of-state trust company and, to the extent practicable, shall consult and cooperate with the home state regulator in pursuing and resolving the enforcement action. An out-of-state trust company may appeal a final order or other decision of the banking commissioner under this subtitle as provided by Sections 181.202 and 181.204.

(b) Notwithstanding Subsection (a), the banking commissioner may enforce this subtitle against a trust institution by appropriate action in the courts, including an action for injunctive relief, if the banking commissioner concludes the action is necessary or desirable.

§187.306. Notice of Subsequent Event.

Each out-of-state trust company that has established and maintains an office in this state pursuant to this subtitle shall give written notice, at least 30 days before the effective date of the event, or, in the case of an emergency transaction, a shorter period before the effective date consistent with applicable state or federal law, to the banking commissioner of:

(1) a merger or other transaction that would cause a change of control with respect to the trust company, with the result that an application would be required to be filed with the home state regulator or a federal supervisory agency;

(2) a transfer of all or substantially all of the trust accounts or trust assets of the out-of-state trust company to another person; or

(3) the closing or disposition of an office in this state.

CHAPTER 199. MISCELLANEOUS PROVISIONS (TITLE 3; SUBTITLE F)

[Includes §§199.001 - 199.005.]

§199.001. Slander or Libel of State Trust Company.

(a) A person commits an offense if the person:

(1) knowingly makes, circulates, or transmits to another person an untrue statement that is derogatory to the financial condition of a state trust company located in this state; or

(2) intentionally, to injure the state trust company, counsels, aids, procures, or induces another person to knowingly make, circulate, or transmit to another person an untrue statement that is derogatory to the financial condition of a state trust company located in this state.

(b) An offense under this section is a state jail felony.

§199.002. Authority to Act as Notary Public.

A notary public is not disqualified from taking an acknowledgement or proof of a written instrument as provided by Section 406.016, Government Code, solely because of the person´s ownership of stock or participation interest in or employment by a trust institution that is an interested party in the underlying transaction, including a state trust company or a trust institution organized under the laws of another state that lawfully maintains an office in this state.

§199.003. Succession of Trust Powers.

(a) If, at the time of a merger, reorganization, conversion, sale of substantially all of its assets under Chapter 182 or 187 or other applicable law, or sale of substantially all of its trust accounts and related activities at a separate branch or trust office, a reorganizing or selling state trust company is acting as trustee, guardian, executor, or administrator, or in another fiduciary capacity, a successor or purchasing trust institution with sufficient fiduciary authority may continue the office, trust, or fiduciary relationship:

(1) without the necessity of judicial action or action by the creator of the office, trust, or fiduciary relationship; and

(2) without regard to whether the successor or purchasing trust institution meets qualification requirements specified in an instrument creating the office, trust, or fiduciary relationship other than a requirement related to geographic locale of account administration, including requirements as to jurisdiction of incorporation, location of principal office, or type of financial institution.

(b) The successor or purchasing trust institution may perform all the duties and exercise all the powers connected with or incidental to the fiduciary relationship in the same manner as if the successor or purchasing trust institution had been originally designated as the fiduciary.

§199.004. Discovery of Client Records.

Civil discovery of a client record maintained by a trust institution, including a state trust company or a trust institution organized under the laws of another state that lawfully maintains an office in this state, is governed by Section 59.006.

§199.005. Compliance Review Committee.

A trust company may establish a compliance review committee as provided by Section 59.009.

CHAPTER 271. FINANCIAL TRANSACTION REPORTING REQUIREMENTS (TITLE 3; SUBTITLE Z)

[Includes §§271.001 - 271.006.]

§271.001. Reporting Requirement for Crimes and Suspected Crimes and Currency and Foreign Transactions.

(a) A financial institution in this state that is required to file a report under the Currency and Foreign Transactions Reporting Act (31 U.S.C. Section 5311 et seq.), 31 C.F.R. Part 103, or 12 C.F.R. Section 21.11, and their subsequent amendments, shall file a copy of the report with the attorney general.

(b) A financial institution that timely files the report described by Subsection (a) with the appropriate federal agency as required by federal law complies with that subsection unless the attorney general:

(1) notifies the financial institution that the report is not of a type that is regularly and comprehensively transmitted by the federal agency to the attorney general following the attorney general´s request to that agency;

(2) requests that the financial institution provide the attorney general with a copy of the report; and

(3) reimburses the financial institution for the actual cost of duplicating and delivering the report or 25 cents for each page, whichever is less.

(c) In this section, "financial institution" has the meaning assigned by 31 U.S.C. Section 5312 and its subsequent amendments.

§271.002. Reporting Requirement for Cash Receipts of More than $10,000.

(a) A person engaged in a trade or business who, in the course of the trade or business, receives more than $10,000 in one transaction or in two or more related transactions and who is required to file a return under Section 6050I, Internal Revenue Code of 1986 (26 U.S.C. Section 6050I), or 26 C.F.R. Section 1.6050I-1, and their subsequent amendments, shall file a copy of the return with the attorney general.

(b) A person who timely files the return described by Subsection (a) with the appropriate federal agency as required by federal law complies with that subsection unless the attorney general:

(1) notifies the person that the return is not of a type that is regularly and comprehensively transmitted by the federal agency to the attorney general; and

(2) requests that the person provide the attorney general with a copy of the return.

§271.003. Use of Reported Information.

The attorney general may report a possible violation indicated by analysis of a report or return described by this chapter or information obtained under this chapter to an appropriate law enforcement agency for use in the proper discharge of the agency´s official duties.

§271.004. Failure to Comply with Reporting Requirements; Criminal Penalty.

(a) A person commits an offense if the person:

(1) is requested by the attorney general to submit information required by Section 271.001 or 271.002 to the attorney general; and

(2) knowingly fails to provide the requested information to the attorney general before the 30th day after the date of the request.

(b) An offense under this section is a Class A misdemeanor.

§271.005. Suppression of Physical Evidence; Criminal Penalty.

(a) A person commits an offense if the person knowingly suppresses physical evidence connected with information contained in a report or return required by this chapter through concealment, alteration, or destruction.

(b) An offense under this section is a Class A misdemeanor.

§271.006. Notification to Target of Criminal Investigation; Criminal Penalty.

(a) A person commits an offense if the person:

(1) is required to submit a report or return under this chapter; and

(2) knowingly notifies an individual who is the target of a criminal investigation involving an offense under Chapter 34, Penal Code, that:

(A) the attorney general has requested the person to provide information required by this chapter related to the targeted individual; or

(B) the individual may be subject to impending criminal prosecution.

(b) An offense under this section is a Class A misdemeanor.

CHAPTER 274. SUBSTITUTE OR SUCCESSOR FIDUCIARY (TITLE 3; SUBTITLE Z)

§274.001. Definitions.

In this chapter:

(1) "Bank" has the meaning assigned by Section 2(c), Bank Holding Company Act of 1956 (12 U.S.C. Section 1841(c)) as amended, excluding a bank that does not have its main office or a branch located in this state.

(2) "Bank holding company" has the meaning assigned by Section 2(a), Bank Holding Company Act of 1956 (12 U.S.C. Section 1841(a)), as amended.

(3) "Commissioner" means the banking commissioner of Texas.

(4) "Fiduciary" means an entity responsible for managing a fiduciary account.

(5) "Fiduciary account" means an account involving the exercise of a corporate purpose specified by Section 182.001(b).

§274.002. Affiliated Bank.

A bank is affiliated with a subsidiary trust company if more than 50 percent of the bank´s voting stock is directly or indirectly owned by a bank holding company that owns more than 50 percent of the voting stock of the subsidiary trust company.

§274.003. Subsidiary Trust Company.

An entity is a subsidiary trust company of a bank holding company if:

(1) the entity is a:

(A) corporation incorporated under Subchapter A, Chapter 182; or

(B) bank that is organized to conduct a trust business and any incidental business or to exercise trust powers; and

(2) more than 50 percent of the voting stock of the entity is directly or indirectly owned by the bank holding company.

§274.101. Agreement to Substitute Fiduciaries.

(a) A subsidiary trust company may enter into an agreement with an affiliated bank of the company to substitute the company as fiduciary for the bank in each fiduciary account listed in the agreement, provided the situs of account administration is not moved outside of this state without the express written consent of all persons entitled to notice under Sections 274.103(a) and (c).

(b) The agreement must include:

(1) a list of each fiduciary account for which substitution is requested;

(2) a statement of whether the substitution will cause a change in the situs of administration of each fiduciary account; and

(3) the effective date of the substitution, which may not be before the 91st day after the date of the agreement.

(d) A fiduciary account may be removed from the operation of the agreement by the filing of an amendment to the agreement with the commissioner before the effective date stated in the agreement.

§274.102. Situs of Account Administration.

The situs of administration of a fiduciary account is the county in this state in which the fiduciary maintains the office that is primarily responsible for dealing with the parties involved in the account.

§274.103. Notice of Substitution.

(a) Not later than the 91st day before the effective date of a substitution under Section 274.101, the parties to the substitution agreement shall send notice of the substitution to:

(1) any other fiduciary;

(2) each surviving settlor of a trust relating to the fiduciary account;

(3) each issuer of a security for which the affiliated bank administers the fiduciary account;

(4) the plan sponsor of each employee benefit plan relating to the fiduciary account;

(5) the principal of each agency account; and

(6) the guardian of the person of each ward that has the fiduciary account resulting from a guardianship.

(b) If the substitution does not cause a change in the situs of administration of a fiduciary account, the parties to the substitution agreement shall also send notice of the substitution to each person who is readily ascertainable as a beneficiary of the account because the person has received account statements or because a parent, conservator, or guardian of a minor beneficiary has received account statements on the minor´s behalf.

(c) If the substitution causes a change in the situs of administration of a fiduciary account, the parties to the substitution agreement shall also send notice of the substitution to:

(1) each adult beneficiary of a trust relating to the account;

(2) each parent, conservator, or guardian of a minor beneficiary receiving or entitled to receive current distributions of income or principal from the account; and

(3) each person who individually or jointly has the power to remove the fiduciary being substituted.

(d) The notice must be sent by United States mail to the person´s current address as shown on the fiduciary´s records. The fiduciary shall make a reasonable attempt to ascertain the address of a person who does not have an address shown on the fiduciary´s records.

§274.104. Form of Notice of Substitution.

The notice required under Section 274.103 must be in writing and disclose:

(1) the effect the substitution of fiduciary will have on the situs of administration of the fiduciary account;

(2) the person´s rights with respect to objecting to the substitution; and

(3) the liability of the existing fiduciary and the substitute fiduciary for their actions.

§274.105. Failure to Send Notice of Substitution; Defective Notice.

(a) If the parties to a substitution agreement under Section 274.101 intentionally fail to send the required notice under Section 274.103, the substitution of the fiduciary is ineffective.

(b) If the parties unintentionally fail to send the required notice, the substitution of the fiduciary is not impaired.

(c) If a substitution of a fiduciary is ineffective because of a defect in the required notice, any action taken by a subsidiary trust company before the substitution is determined to be ineffective is valid if the action would have been valid if performed by the affiliated bank.

§274.106. Effective Date of Substitution of Fiduciaries.

(a) The substitution takes effect on the effective date stated in the substitution agreement unless, not later than the 16th day before the effective date:

(1) each party entitled to receive notice of the substitution under Sections 274.103(a) and (c) provides the affiliated bank with a written objection to the substitution; or

(2) a party entitled to receive notice of the substitution under Section 274.103 files a written petition in a court seeking to have the substitution denied under Section 274.107 and provides the affiliated bank with a copy of the petition.

(b) A substitution that is objected to under Subsection (a)(1) takes effect when:

(1) one of the parties objecting to the substitution removes the party´s objection in writing; or

(2) the bank obtains a final court order approving the substitution.

(1) the petition is withdrawn or dismissed; or

(2) the court enters a final order denying the relief sought.

§274.107. Hearing on Agreement to Substitute Fiduciaries.

(a) A court may deny the substitution if the court, after notice and hearing, determines:

(1) if the substitution will not cause a change in the situs of administration of a fiduciary account, that the substitution is materially detrimental to the account or to its beneficiaries; or

(2) if the substitution will cause a change in the situs of administration of a fiduciary account, that the substitution is not in the best interests of the account or its beneficiaries.

(b) The court shall allow a substitution that will cause the situs of administration of a fiduciary account to change if the court, after notice and hearing, determines that the substitution is in the best interests of the account and its beneficiaries.

(c) In a proceeding under this section, the court may award costs and reasonable and necessary attorney´s fees as the court considers equitable and just.

§274.108. Subsidiary Trust Company as Substitute Fiduciary.

On the effective date of the substitution as prescribed by Section 274.106, the subsidiary trust company:

(1) without the necessity of an instrument of transfer or conveyance, succeeds to all interest in property the affiliated bank holds for the fiduciary account being substituted; and

(2) without the necessity of judicial action or action by the creator of the fiduciary account, becomes fiduciary of the account and shall perform the duties and exercise the powers of a fiduciary in the same manner as if the company had originally been designated fiduciary.

§274.109. Notice of Change in Situs of Administration of Fiduciary Account Following Substitution.

(a) If the fiduciary of a fiduciary account has changed as a result of a substitution agreement under Section 274.101, the substitute fiduciary shall send notice of a change in the situs of administration of the account after the substitution to each person entitled to notice under Sections 274.103(a) and (c) not later than the 91st day before the effective date of the change.

(b) The notice must be sent by United States mail to the person´s current address as shown on the fiduciary´s records. The fiduciary shall make a reasonable attempt to ascertain the address of a person who does not have an address shown on the fiduciary´s records.

(1) the effect that the change will have on the situs of administration of the account;

(2) the effective date of the change; and

(3) the person´s rights with respect to objecting to the change.

§274.110. Failure to Send Notice of Change in Situs of Administration.

(a) If the substitute fiduciary of a fiduciary account intentionally fails to send the required notice under Section 274.109, the change in the situs of administration is ineffective.

(b) If the substitute fiduciary unintentionally fails to send the required notice, the change in the situs of administration is not impaired.

§274.111. Effective Date of Change in Situs of Administration of Fiduciary Account.

(a) A change in the situs of administration takes effect on the effective date stated in the notice under Section 274.109 unless, not later than the 16th day before the effective date:

(1) each party entitled to receive notice for the fiduciary account provides the subsidiary trust company with a written objection to the change; or

(2) a party entitled to receive notice files a written petition in a court seeking to have the change denied under Section 274.112 and provides the subsidiary trust company with a copy of the petition.

(b) A change that is objected to under Subsection (a)(1) takes effect when:

(1) one of the parties objecting to the change removes the party´s objection in writing; or

(2) the subsidiary trust company obtains a final court order approving the change.

(1) the petition is withdrawn or dismissed; or

(2) the court enters a final order denying the relief sought.

§274.112. Hearing on Change in Situs of Administration of Fiduciary Account.

(a) A court may allow the change in the situs of administration if the court, after notice and hearing, determines that the change is in the best interests of the fiduciary account and its beneficiaries. The court may deny the change if the court, after notice and hearing, determines that the change is not in the best interests of the account or its beneficiaries.

(b) In a proceeding under this section, the court may award costs and reasonable and necessary attorney´s fees as the court considers equitable and just.

§274.113. Venue.

(a) An action under this subchapter for a fiduciary account resulting from a decedent´s estate or guardianship must be brought in the county provided for by the Estates Code with respect to the probate of a will, issuance of letters testamentary or of administration, administration of a decedent´s estate, appointment of a guardian, and administration of a guardianship.

(b) Except as provided by Subsection (c), an action under this subchapter regarding any other fiduciary account must be brought in the county of the situs of administration of the account, notwithstanding a statute that would set venue in the location of the fiduciary´s principal office.

(c) A beneficiary of a fiduciary account described by Subsection (b) may elect to bring the action in the county in which the principal office of the first affiliated bank that transferred the account under this subchapter is located.

§274.114. Subsidiary Trust Company as Successor Fiduciary.

For purposes of qualifying as successor fiduciary under a document creating a fiduciary account or a statute of this state relating to fiduciary accounts, a subsidiary trust company:

(1) is considered to have capital and surplus in an amount equal to the total of its capital and surplus and the capital and surplus of the bank holding company that owns the company; and

(2) is treated as a national bank unless it:

(A) is not a national bank under federal law; and

(B) has not entered into a substitution agreement with an affiliated bank of the company that is a national bank under federal law.

§274.115. Bond of Successor Fiduciary.

If an affiliated bank of a subsidiary trust company has given bond to secure performance of its duties and the company qualifies as successor fiduciary, the company shall give bond to secure performance of its duties in the same manner as the bank.

§274.116. Responsibility for Subsidiary Trust Company.

The bank holding company that owns a subsidiary trust company shall file with the commissioner an irrevocable undertaking to be fully responsible for the fiduciary acts and omissions of the subsidiary trust company.

§274.201. Designation of Affiliated Bank as Fiduciary in Will.

The prospective designation in a will or other instrument of an affiliated bank of a subsidiary trust company as fiduciary is also considered a designation of the company as fiduciary and confers on the company any discretionary power granted in the instrument unless:

(1) the bank and company agree in writing to have the designation of the bank as fiduciary be binding; or

(2) the creator of the fiduciary account, by appropriate language in the document creating the account, provides that the account is not eligible for substitution under this chapter.

§274.202. Liability of Affiliated Bank Acting as Fiduciary.

After a substitution of a subsidiary trust company as fiduciary for an affiliated bank of the company, the bank remains liable for any action taken by the bank as a fiduciary.

§274.203. Deposit of Money with Affiliated Bank.

(a) A subsidiary trust company may deposit with an affiliated bank of the company fiduciary money that is being held pending an investment, distribution, or payment of a debt if:

(1) the company maintains under its control as security for the deposit a separate fund of securities legal for trust investments pledged by the bank;

(2) the total market value of the securities is at all times at least equal to the amount of the deposit; and

(3) the fund of securities is designated as a separate fund.

(b) The bank may make periodic withdrawals from or additions to the fund of securities required by this section only if the required value is maintained.

(d) Security for a deposit under this section is not required to the extent the deposit is insured or otherwise secured under law.

CHAPTER 275. TEXAS MUTUAL TRUST INVESTMENT COMPANY ACT (TITLE 3; SUBTITLE Z)

§275.001. Short Title.

This chapter may be cited as the Texas Mutual Trust Investment Company Act.

§275.002. Definitions.

In this chapter:

(1) "Fiduciary institution" means a:

(A) state bank with trust powers;

(B) national bank with trust powers; or

(2) "Stock" means a unit of participation in the net asset value of one or more of the investment funds of a mutual trust investment company.

§275.003. Application of General Corporation Law.

Except as provided by this chapter, a mutual trust investment company must be incorporated under and is subject to the general corporation laws of this state.

§275.004. Investment of Corporation Assets.

A mutual trust investment company may invest its assets only in investments in which a trustee may invest under the laws of this state.

§275.051. Creation of Mutual Trust Investment Company.

(a) One or more fiduciary institutions may incorporate a mutual trust investment company as provided by this chapter to be a medium for the common investment of trust funds held in a fiduciary capacity for fiduciary purposes, by those entities alone or with one or more cofiduciaries.

(b) A mutual trust investment company must be an open-end investment company as defined by, and must be subject to, the Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.).

§275.052. Incorporators.

(a) To incorporate, a mutual trust investment company must have five or more persons subscribe and acknowledge the company´s articles of incorporation.

(b) A person subscribing and acknowledging the articles of incorporation of a mutual trust investment company must be an officer or director of a fiduciary institution causing the mutual trust investment company to be incorporated.

§275.053. Contents of Articles of Incorporation.

In addition to the information required by the general corporation laws, the articles of incorporation shall state:

(1) the name of each fiduciary institution causing the corporation to be incorporated; and

(2) the amount of stock originally subscribed for by each fiduciary institution.

§275.101. Directors.

(a) Except as provided by Subsection (b), a mutual trust investment company must have at least five directors, each of whom is not required to be a stockholder but must be an officer or director of a bank or trust company that is located in this state.

(b) An officer or director of a bank or trust company not located in this state may serve as a director of a mutual trust investment company only if that officer´s or director´s bank or trust company owns stock in a fiduciary capacity in the mutual trust investment company.

§275.102. Audits and Reports.

(a) At least once each year, a mutual trust investment company shall cause an adequate audit to be made of the company by auditors responsible only to the board of directors of the company.

(b) A mutual trust investment company shall furnish annually a copy of the company´s audited financial statement to each corporate fiduciary owning stock in the company.

(1) reasonable expenses of an audit required by this section made by an independent public accountant or certified public accountant; and

(2) costs of preparing and distributing a report required by this section.

§275.151. Ownership.

The stock of a mutual trust investment company may be owned only by fiduciary institutions acting as fiduciaries and any of their cofiduciaries.

§275.152. Registration.

The stock of a mutual trust investment company may be registered in the name of one or more nominees of the owner of the stock.

§275.153. Transfer and Assignment.

The stock of a mutual trust investment company may not be transferred except to:

(1) the mutual trust investment company; or

(2) a fiduciary or cofiduciary that becomes successor to a stockholder and that is a bank or trust company qualified to hold the stock under this chapter.

§275.154. Ownership by Mutual Trust Investment Company.

A mutual trust investment company may acquire its own stock and shall bind itself, by contract or its bylaws, to acquire its own stock, but may not vote on shares of its own stock.

§275.201. Purchase by Fiduciary; Authority and Restrictions.

A fiduciary institution, alone or with one or more cofiduciaries, acting as a fiduciary for fiduciary purposes with the consent of any cofiduciaries, may invest and reinvest funds held in a fiduciary capacity, exercising the care of a prudent investor, in the shares of stock of a mutual trust investment company unless a will, trust indenture, or other instrument under which the fiduciary is acting prohibits that investment.

§275.202. Responsibility of Mutual Trust Investment Company.

(a) A mutual trust investment company is not:

(1) required to determine the investment powers of a fiduciary that purchases its stock; or

(2) liable for accepting funds from a fiduciary in violation of the restrictions of a will, trust indenture, or other instrument under which the fiduciary is acting in the absence of actual knowledge of the violation.

(b) A mutual trust investment company is:

(1) accountable only to a fiduciary who is an owner of its stock; and

(2) permitted to rely on the written statement of any bank or trust company purchasing its stock that the purchase complies with Section 275.201.