Rules - Texas Administrative Code

TITLE 7. BANKING AND SECURITIES

PART 1. FINANCE COMMISSION OF TEXAS

CHAPTER 3. STATE BANK REGULATION (TITLE 7; PART 1)

Subchapter A. Securities Activities and Subsidiaries

§3.1. Private Placement of Securities.

(a) A state-chartered bank may engage in private placement transactions by acting as broker and bringing together buyers and sellers of privately placed instruments. The term "private placement transactions" means:

(1) making recommendations regarding the terms and timing of the transaction;

(2) assisting in the preparation of the financing documents;

(3) contacting potential institutional investors;

(4) arranging meetings between the issuer and potential investors; and

(5) assisting in subsequent negotiations involving these parties.

Source: The provisions of this §3.1 adopted to be effective August 19, 1985, 10 TexReg 2542; amended to be effective May 17, 1996, 21 TexReg 3929; amended to be effective September 8, 2022, 47 TexReg 5327.

§3.2. Investment and Financial Advisory Services.

A state-chartered bank may provide investment and financial advisory services including professional asset management services and services as an adviser in connection with mergers, acquisitions, and divestitures. A state bank may also serve as a dealer-manager in connection with tender offers.

Source: The provisions of this §3.2 adopted to be effective August 19, 1985, 10 TexReg 2542.

§3.3. Securities and Other Activities of Subsidiaries of State Banks.

(a) Securities activities permitted. Pursuant to Finance Code, §34.103(c), a state bank may establish or acquire a subsidiary that engages in securities activities; provided, however, that said subsidiary shall comply with all rules and regulations of the Securities and Exchange Commission and the State Securities Board applicable to registered brokers-dealers and investment advisors. The term "securities activities" means issuing, underwriting, selling, or distributing, or acting as agent or advisor in the issuing, underwriting, selling, or distributing of stocks, bonds, debentures, notes, or other securities.

(b) Capitalization. Any subsidiary engaged in securities activities pursuant to this regulation must comply with any applicable state and federal capital requirements including, but not limited to, those imposed by the Securities and Exchange Commission, the State Securities Board, or the National Association of Securities Dealers.

(c) Limitations. A state bank may not purchase, in its discretion as fiduciary or managing agent, any security underwritten, distributed, or issued by the bank´s securities subsidiary or any security issued by an investment company advised by the subsidiary unless authorized by applicable law.

(d) Notice. A state bank must, before or at the time of submitting a letter to the banking commissioner regarding a new subsidiary or new subsidiary activity as required by Finance Code, §34.103(e), submit to the banking commissioner any related filing or application made with the Federal Deposit Insurance Corporation or with a Federal Reserve Bank, including filings required under the provisions of 12 CFR Part 208 or Part 362, or any successor regulation.

Source: The provisions of this §3.3 adopted to be effective August 19, 1985, 10 TexReg 2542; amended to be effective May 17, 1996, 21 TexReg 3929; amended to be effective September 8, 2022, 47 TexReg 5327.

§3.4. Foreign Banking.

(a) Any state-chartered bank that is well-capitalized as defined by Section 38, Federal Deposit Insurance Act, 12 U.S.C. §1831o may file an application with the banking commissioner for permission to exercise, upon such conditions as may be prescribed by the banking commissioner, the following powers:

(1) to establish branches in foreign countries of dependencies or insular possessions of the United States for the furtherance of foreign commerce and to act as fiscal agent for any governmental entity;1

(2) to invest an amount not exceeding in the aggregate 10% of its paid-in capital stock and surplus in the stock of one or more banks or corporations chartered or incorporated under the laws of the United State or of any state thereof, and principally engaged in international or foreign banking, or banking in a dependency or insular possession of the United States either directly or indirectly; and

(3) to require and hold, directly or indirectly, stock or other evidences of ownership in one or more banks organized under the law of a foreign country or a dependency or insular possession of the United States and not engaged, directly or indirectly, in any activity in the United States except as, in the judgment of the banking commissioner, shall be incidental to the international or foreign business of such foreign bank; and to make loans or extensions of credit to or for the account of such bank in a manner and within limits prescribed by the banking commissioner.

(b) Such application shall specify the name and capital of the state bank filing it, the powers applied for, and the place or places where the banking or financial operations proposed are to be carried on. The banking commissioner shall have the power to approve or reject such application in whole or in part and shall also have the power from time to time to increase or decrease the number of places where such banking operations may be carried on.

(c) The investment limitation of Finance Code, §34.103(b), does not apply to an investment made pursuant to this section. The banking commissioner may approve any activity or investment authorized by this section subject to such restrictions as the banking commissioner deems advisable and consistent with safe and sound banking practices, and may require any investment pursuant to subsection (a)(2) or (a)(3) of this section to constitute a majority interest in the voting securities of the bank or corporation acquired.

Source: The provisions of this §3.4 adopted to be effective August 19, 1985, 10 TexReg 2543; amended to be effective July 13, 1994, 19 TexReg 5035; amended to be effective May 17, 1996, 21 TexReg 3929; amended to be effective March 9, 2006, 31 TexReg 1643; amended to be effective July 5, 2018, 43 TexReg 4451; amended to be effective September 8, 2022, 47 TexReg 5327.

§3.5. Financial Valuation and Advisory Services.

A state-chartered bank may provide financial valuation and advisory services to its depositors or clients. The term "financial valuation and advisory services" means:

(1) the valuation of a company for purposes of acquisitions, mergers, and divestitures;

(2) fairness opinions in connection with tender offers, consolidations, or mergers;

(3) advice for management or for a bankruptcy court about the viability and capital adequacy of financially troubled companies and about the fairness of proposed bankruptcy reorganizations;

(4) valuation opinions for transactions in publicly held securities;

(5) valuations of the fair market value of employee stock ownership trusts;

(6) periodic valuation of stock of privately owned companies held in pension or profit-sharing plans, charitable trusts, or venture capital funds;

(7) valuation of a privately owned company, or of a large block of publicly owned securities;

(8) valuations, for estate tax and estate planning purposes, of a company´s common stock and other securities for recapitalization of a privately held company; and

(9) expert witness testimony in support of valuations.

Source: The provisions of this §3.5 adopted to be effective August 19, 1985, 10 TexReg 2543.

Subchapter B. General

§3.21. Bank Call Reports.

(a) Definitions. The following words and terms, when used in this section shall have the following meanings unless the context clearly indicates otherwise.

(1) Call report--A report of condition and income in FFIEC form as required by 12 U.S.C. §1817, or a report of financial condition and results of operations of a state bank as mandated by the banking commissioner pursuant to the Finance Code, §31.108.

(2) FDIA--The Federal Deposit Insurance Act, 12 U.S.C. §1811 et seq.

(3) FDIC-The Federal Deposit Insurance Corporation.

(4) FFIEC-The Federal Financial Institutions Examination Council.

(5) State bank-A bank as defined by the Finance Code, §31.002(a)(50).

(b) Reporting requirements of FDIA regulated state banks. Each state bank which is subject to regulation under FDIA will be considered to have filed a copy of its call report with the banking commissioner if the state bank has filed its call report pursuant to FDIA and FFIEC guidelines and requirements.

(c) Reporting requirements for non-FDIA regulated entities. Each state bank not subject to subsection (b) of this section shall file four call reports annually with the banking commissioner. Such call reports must be filed with the banking commissioner no later than April 30, July 31, and October 31 of each year and by January 31 of the subsequent year, and shall be for the periods ending on March 31, June 30, September 30, and December 31, respectively, of the annual reporting year. The call reports required under this subsection must be in substantially the same form and contain substantially the same information as call reports filed by FDIA-regulated state banks in accordance with FDIA and FFIEC requirements pursuant to subsection (b) of this section. The call report forms, the instructions for completing the reports and the accompanying materials will be furnished to all state banks subject to this subsection, or may be obtained upon request from the Bank and Trust Division, Texas Department of Banking, 2601 North Lamar Boulevard, Austin, Texas 78705-4294. The banking commissioner may make such modifications and additions to call report form and contents under this subsection as considered necessary in the discretionary discharge of the banking commissioner´s duties, notwithstanding FDIA and FFIEC guidelines and requirements.

(d) Special call reports. In addition to the requirements of subsections (b) and (c) of this section, the banking commissioner may require a state bank to file and submit a special call report, in such form and manner and containing such information as may be requested, on dates fixed, whenever in the banking commissioner´s discretion the special call report is necessary in the performance of the banking commissioner´s supervisory duties related to the safety and soundness of the state bank. Special call reports must contain only such information as is specifically requested by the banking commissioner.

(e) Call report declarations and attestations. Each call report or special call report required to be filed under subsections (c) and (d) of this section must contain a declaration by the president, a vice president, the cashier, or by another officer designated by the board of directors of the state bank to make such declaration, that the report is true and correct to the best of such individual´s knowledge and belief. The correctness of the call report or special call report must also be attested by the signatures of at least two of the directors of the state bank other than the officer making the declaration. The declaration of the directors must state that the call report or special call report has been examined by them and is true and correct to the best of their knowledge and belief.

(f) Publication. Each state bank which is subject to regulation under FDIA will be considered to have publicly posted its call report if it has filed its call report pursuant to subsection (b) of this section. A state bank must publicly post or publish its call report in a newspaper or other media of general circulation if specifically directed to do so by the banking commissioner.

(g) Confidentiality. Pursuant to the Finance Code, §31.301, call reports filed under subsections (b) or (c) of this section are public information to the extent that such reports are considered public records under the FDIA, implementing federal regulations, and FFIEC guidelines, and may be published or otherwise disclosed to the public. Special call reports filed pursuant to subsection (d) of this section and non-public portions of call reports filed pursuant to subsections (b) or (c) of this section are confidential, subject only to such disclosure as may be permitted by the Finance Code, §§31.302-31.308, or by §3.111 of this title (relating to Confidential Information).

(h) Penalties for failure to file or for filing a report with false or misleading information. A state bank which fails to make, file, or submit a call report or a special call report or fails to timely file a call report or special call report as required by this section is subject to a penalty not exceeding $500 a day to be collected by the attorney general on behalf of the banking commissioner. Any state bank which makes, files, submits or publishes a false or misleading call report or special call report is subject to an enforcement action pursuant to the Finance Code, Chapter 35.

Source: The provisions of this §3.21 adopted to be effective May 17, 1996, 21 TexReg 3930; amended to be effective November 13, 1997, 22 TexReg 10949; amended to be effective March 9, 2006, 31 TexReg 1643; amended to be effective September 8, 2022, 47 TexReg 5327.

§3.22. Sale or Lease Agreements with an Officer, Director, or Principal Shareholder of the Bank or of an Affiliate of the Bank.

(a) Agreement in writing. A sale or lease agreement between a state bank and an officer, director, or principal shareholder of the bank or of an affiliate of the bank must be in writing. Existing verbal agreements must be reduced to writing and approved by the board.

(b) Terms of agreement. A sale or lease agreement between a state bank and an officer, director, or principal shareholder of the bank or of an affiliate of the bank must comply with applicable laws and regulations, be consistent with prudent and sound banking principles, and have terms and rates that are substantially equivalent to or more favorable to the bank than those prevailing at the time for comparable transactions with or involving nonaffiliated parties.

(c) Board action. All proposed transactions subject to Finance Code, §33.109, must be considered and voted upon by the board. Under Finance Code, §33.109(a), without the prior approval of a disinterested majority of the board, or the transaction at issue must be submitted for prior approval of the banking commissioner. For purposes of this section, approval of a disinterested majority of the board is obtained in the manner specified by the Texas Business Organizations Code, §21.418, with respect to a banking association, or §101.255, with respect to a limited banking association.  

(d) Application for approval. If a sale or lease agreement requires the written approval of the banking commissioner prior to consummating, renewing, or extending a sale or lease agreement, a written request for approval must be submitted to the banking commissioner at least 60 days prior to the proposed effective date of the sale or lease agreement and must include the following information:

(1) a copy of the proposed sale or lease agreement;

(2) a complete description of the personal or real property to be sold or leased;

(3) a full disclosure of all existing transactions and/or relationships, whether direct or indirect, between the state bank and the parties involved;

(4) in the case of a lease agreement involving real property, a copy of the minutes of the board meeting reflecting an analysis of the information contained in this subsection;

(5) a certified copy of a board resolution approving the transaction and indicating those directors voting or abstaining, as the case may be, and either:

(A) evidence that the transaction received the approval of a disinterested majority of the board; or

(B) a statement explaining the reasons the approval of a disinterested majority of the board could not be obtained; 

(6) copies of appropriate supporting documentation, including analysis of comparable terms and rates for the real or personal property to be sold or leased;

(7) in the case of a lease agreement, evidence demonstrating that the state bank will account for the lease in accordance with Financial Account Standards Board Account Standard Codification Topic 842, Leases; and 

(8) other information which the banking commissioner may request.

(e) Records. A state bank shall maintain the originals of all sale or lease agreements with an officer, director, or principal shareholder of the bank or of an affiliate of the bank, which documents must be made available at all times to the Texas Department of Banking for examination and review. For purposes of this subsection, required documentation need not be retained beyond three years after the expiration of the sale or lease agreement to which the documentation pertains.

(f) Exemption. Finance Code §33.109, and this section do not apply to a transaction subject to and in compliance with the Federal Reserve Act, §23A and §23B (12 U.S.C. §371c and §371c-1), and implementing regulations applicable to nonmember insured state banks by virtue of the Federal Deposit Insurance Act, §18(j)(1) (12 U.S.C. §1828(j)(1)).

Source: The provisions of this §3.22 adopted to be effective November 22, 1996, 21 TexReg 11097; amended to be effective March 9, 2006, 31 TexReg 1643; amended to be effective  May 10, 2007, 32 TexReg 2463; amended to be effective November 4, 2010, 35 TexReg 9694; amended to be effective September 8, 2022, 47 TexReg 5327.

§3.23 Exercise of Trust Powers.

(a) As used in this section, "trust services" mean services provided to the public as a fiduciary for hire or compensation, to hold or administer accounts established through a customer relationship involving the transfer of title to funds or property to the bank, including a fiduciary relationship in which the bank acts as trustee, executor, administrator, guardian, custodian, conservator, receiver, registrar of stocks and bonds, mortgage or indenture trustee, escrow agent, transfer agent, or investment advisor, except that "trust services" do not include customer services in which:

(1) the bank's duties as trustee or custodian are essentially custodial or ministerial in nature; and

(2) the bank may only invest customer funds:

(A) in its own time or savings deposits; or

(B) in other assets at the explicit direction of the customer, provided the bank does not exercise any investment discretion or provide any investment advice with respect to such other assets.

(b) A state bank that does not currently provide trust services and has not provided trust services for a period in excess of one year may not begin offering or providing trust services except upon compliance with this section and with any requirements imposed by the bank's primary federal regulator.

(c) A state bank described in subsection (b) of this section that intends to offer and provide trust services shall submit a notice to the banking commissioner describing the proposed trust services and the anticipated date for initiation of such services. In addition, the bank must submit:

(1) the bank's proposed business plan for providing trust services, including the policies and procedures the bank will employ to manage its fiduciary risk;

(2) sufficient biographical information on proposed trust management personnel to enable the banking commissioner to assess their qualifications;

(3) a description of the locations where the bank proposes to offer trust services and the manner in which such services will be provided at each location, including the extent to which fiduciary authority is proposed to be delegated to personnel at such location;

(4) if the bank's certificate of formation does not authorize the bank to exercise the trust powers necessary to provide the proposed trust services, an application for amendment of its certificate of formation pursuant to Finance Code, §32.101, accompanied by the filing fee required by §15.2 of this title (relating to Filing and Investigation Fees); and

(5) a copy of any filings made with the bank's primary federal regulator providing notice or seeking approval to offer trust services.

(d) Provided the bank's certificate of formation authorizes the bank to exercise trust powers sufficient to provide the proposed trust services, and subject to any conditions imposed by the banking commissioner and any required approval of the bank's primary federal regulator, the bank may begin offering and providing trust services on the 31st day after the date the banking commissioner receives the bank's notice under subsection (c) of this section unless the banking commissioner specifies an earlier or later date. The banking commissioner may extend the 30-day period on a determination that the bank's notice raises issues that require additional information or additional time for analysis. If the period is extended, or if the bank is amending its certificate of formation to authorize trust powers, the bank may not offer or provide trust services until it has received written approval of the banking commissioner.

Source: The provisions of this §3.23 adopted to be effective May 7, 2015, 40 TexReg 2409; amended to be effective July 5, 2018, 43 TexReg 4451.

§3.24. Notice of Computer-Security Incident.

A state bank shall notify the banking commissioner and submit the information required by 12 CFR Part 225, Subpart N, or Part 304, Subpart C, as applicable, or any successor regulation, regarding a computer-security incident that qualifies under such regulations as a notification incident, no later than the time the information is required to be submitted to the applicable federal regulatory agency.

Source: The provisions of this §3.24 adopted to be effective January 2, 2020, 44 TexReg 8227, amended to be effective September 8, 2022, 47 TexReg 5327.

§3.34. Posting of Notice in All Financial Institutions Regarding Requirements for Certain Loan Agreements To Be in Writing.

(a)  Pursuant to the Business and Commerce Code, §26.02, all financial institutions must conspicuously post notices informing borrowers of the requirements that certain loan agreements be in writing. Additionally, the finance commission is required to prescribe the language to be used in the notice. This section provides the language for the notice and clarifies the manner and location of the notice within the financial institutions so as to fully inform borrowers of the requirements.

(b) Each financial institution shall post in the public lobby of each of its offices other than off-premises electronic deposit facilities, the public notice set forth in this subsection.

NOTICE TO BORROWERS
CERTAIN LOAN AGREEMENTS
MUST BE IN WRITING

TEXAS LAW (Section 26.02, Business and Commerce Code) requires that all financial institutions conspicuously post notices summarizing requirements that loan agreements be in writing. You should know that:

•  An agreement, promise, or commitment to loan more than $50,000 MUST BE IN WRITING AND SIGNED BY THE LENDER OR IT WILL BE UNENFORCEABLE.

•  The written loan agreement will be the ONLY source of rights and obligations for agreements to lend more than $50,000.

•  Oral agreements relating to loans over $50,000 are NOT EFFECTIVE either to establish a commitment to lend or to vary the terms of a written loan agreement.

As part of the documentation required for loans over $50,000, BORROWERS MUST BE PROVIDED AND MUST SIGN A NOTICE conspicuously stating that:

THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

The notice set forth above, which must be signed by both the borrower and the financial institution, can be in a separate document or incorporated in one or more of the documents constituting the loan agreement. The notice must be in type that is boldfaced, capitalized, underlined or otherwise set out from surrounding written material so as to be conspicuous.

(c) The finance commission shall provide the preceding notice in dimensions and print which it determines is appropriate to fully inform borrowers of the requirements of the Business and Commerce Code, §26.02.

Source: The provisions of this §3.34 adopted to be effective February 14, 1990, 15 TexReg 485; amended to be effective March 9, 2006, 31 TexReg 1643.

§3.35. Safe Deposit Box Facilities.

(a) Purpose. The Finance Code, §59.110 requires financial institutions to imprint keys issued to safe deposit boxes after September 1, 1992, with the financial institution´s routing number. In addition, it requires a report to the Department of Public Safety if the routing number is altered or defaced so that the correct routing number is illegible. This section clarifies the requirements of this section.

(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Financial institution-A bank, savings and loan association, savings bank, or other financial institution that has been assigned a routing number unique to that institution..

(2) Routing number-The number printed on the face of a check in fractional form or in nine-digit form that identifies a paying financial institution.

(c) Imprinting Requirements. A financial institution which has been issued a routing number shall imprint that routing number on safe deposit box keys on either the head of the key or the shank of the key if there is adequate room. The typical locations to be used are indicated in the following instructions and diagram. The imprint can be made anywhere on the key that has the required space available. It can be either on the head or on the shank of the key. When positioning the die on the key, be careful to place the die on the key where it will imprint on a flat surface and not in the area of the key cuts or on any of the shank ridges or grooves. Imprinting in these areas may interfere with the proper working of the key in the lock and may cause damage. In the event these standard areas for the location of the imprint are unavailable, either because of grooves on the key shank or the fact that the head of the key already has names and other numbers imprinted on it, then the financial institution may attach to the key a tag imprinted with the routing number. The tag used must be of such a nature as to be secure. Thus, a paper or cardboard tag or a tag affixed with string will not be acceptable. However, any other medium such as plastic or metal which can retain an imprint of a number shall be acceptable. The tag may be attached in any way to assure its affixation to the key. Typically, this will mean inserting the tag or a device to affix the tag through the hole in the head of the key normally used for placing keys on key chains. The tag method shall not be used if there is adequate room on the key itself for imprinting of the numbers.

There are four (4) standard areas for the location of the imprinted routing number. These include: the head of the key, the shank of the key, and either place on the reverse side of the key. The standard imprint areas are shown below:

(d) Branch Designation. A financial institution may, but is not required to, add a three-digit branch designation to its routing number. Thus, the main financial institution facility should receive the designation "001" and branch facilities should receive numbers consecutively beginning with "002" with successive numbers as needed. However, the financial institution may control the branch numbering system used provided that the financial institution must maintain a master list of branch designations used for this purpose. The master list should be maintained at the main office of the financial institution and shall include the following information: three-digit branch designation and address of facility. The financial institution then may imprint safe deposit box keys or tags with the routing number plus three-digit branch designation for full identification of the facility.

(e) Report of Defaced or Altered Key. Within ten days after an officer or employee of a financial institution observes that a key used to access a safe deposit box has had the routing number altered or defaced or the tag removed, a report shall be prepared of such incident. The report shall be on a form promulgated by the department in the form of the attached Exhibit A. The report should be submitted to the Department of Public Safety, attention: Criminal Law Enforcement, Box 4087, Austin, Texas 78773-0001. The report should be mailed no later than ten days after the incident. The financial institution should retain one copy of the incident report for a period of three years. Nothing in this section nor in the Finance Code,  §59.110, shall require a financial institution to inspect routing numbers imprinted on a key or an attached tag to determine if the number has been altered or defaced.

REPORT OF DEFACED OR ALTERED ROUTING NUMBER ON SAFE DEPOSIT BOX KEY

Instructions: Complete the information below and submit the original report to Department of Public Safety, Attn: Criminal Law Enforcement, Box 4087, Austin, Texas 78773-0001, no later than 10 days after the defaced or altered key is used to access the box. Retain one copy for your files for a period of three years.

FINANCIAL INSTITUTION INFORMATION

Name of financial institution

____________________________________________

Address of safe deposit box facility

____________________________________________

____________________________________________

Name and title of contact person at facility

____________________________________________

____________________________________________

Area code and phone number of facility

____________________________________________

Routing number and branch designation (if any)

____________________________________________

INCIDENT INFORMATION

Customer name

____________________________________________

Date customer presented defaced or altered key

____________________________________________

Description of problem with key

____________________________________________

____________________________________________

____________________________________________

____________________________________________

Date of report:________________________________

(f) Applicability to Existing Keys. A financial Institution must imprint all safe deposit box keys issued on or after September 1, 1992. Additionally, the imprinting requirement applies to all keys issued prior to September 1, 1992. However, keys for boxes rented prior to September 1, 1992, need not be imprinted with the routing number unless and until a customer presents a safe deposit box key at a financial institution for access to a box. Nothing in this section or the Finance Code, §59.110, shall be construed to require a financial institution to provide notice to its safe deposit box customers or to otherwise require such customers to present their keys for imprinting. However, on the first date after September 1, 1992, that a customer presents a key which has not been imprinted, the financial institution shall imprint the key with the routing number as required by the Finance Code, §59.110.

(g) Effect of Change in Routing Number. In the event a financial institution´s routing number is changed as a result of a merger, acquisition, or other change, safe deposit box keys need not be replaced with a new routing number provided that the financial institution maintain a master list of the routing numbers used to imprint keys.

Source: The provisions of this §3.35 adopted to be effective September 18, 1992, 17 TexReg 6097; amended to be effective May 17, 1996, 21 TexReg 3932; amended to be effective March 9, 2006, 31 TexReg 1643.

§3.36. Annual Assessments and Specialty Examination Fees.2

(a) Authority. The assessment schedule contained in this section is made under the authority contained in the Finance Code, §31.003(a)(4) and §204.003(b).

(b) Definitions. The following words and terms, when used in this section, §3.37 of this title (relating to Calculation of Annual Assessment for Banks), or §3.38 of this title (relating to Calculation of Annual Assessment for Foreign Bank Branches and Agencies), shall have the following meanings, unless the context clearly indicates otherwise.

(1) Assessable assets--The sum of on-book assets and average off-book assets of a bank, foreign bank branch, or foreign bank agency.

(2) Average off-book assets--The average of the off-balance sheet items reported by a bank, foreign bank branch, or foreign bank agency in its most recent March 31st call report and the three immediately preceding call reports, as adjusted under subsection (c) of this section.

(3) Call report--The FFIEC quarterly, consolidated report of condition and income (including domestic and foreign subsidiaries) prepared and filed by a bank, foreign bank branch, or foreign bank agency under state and federal law.

(4) CAMELS composite rating--A bank's composite rating under the Uniform Financial Institutions Rating System (UFIRS), as described more fully in Supervisory Memorandum 1001, assigned by the department to a state bank in connection with its most recent examination by the department or by a federal bank regulatory agency

(5) FFIEC--The Federal Financial Institutions Examination Council.

(6) On-book assets--The total assets reported by a bank, foreign bank branch, or foreign bank agency on the balance sheet contained in its most recent March 31st call report, minus the outstanding balance of PPP loans included on "Schedule RC-M – Memoranda."

(7) PPP--The Paycheck Protection Program administered by the Small Business Administration.

(c)  Calculation of average off-book assets. As a component of assessable assets, a bank, foreign bank branch, or foreign bank agency must calculate a four-quarter average of off-book assets specifically as instructed in the assessment form applicable to the institution, using the most recent March 31st call report and the three preceding call reports. In general, the bank, foreign bank branch, or foreign bank agency must sum all line items for which values are included on "Schedule RC-L-Off-Balance Sheet Items," which could result in assets of the institution, with the exception of:

(1) Amount of financial standby letter of credit conveyed to others;

(2) Amount of performance standby letter of credit conveyed to others;

(3) Participations in acceptances conveyed to others by the reporting bank, foreign bank branch, or foreign bank agency; and

(4) All line items related to derivative products as identified by the department.

(d) Annual assessment. Effective September 1 of each year, the department will establish the annual assessment for each bank, foreign bank branch, and foreign bank agency under subsections (f) and (g) of this section.

(1) The assessment for a bank is based on its assessable assets and calculated in the manner described in §3.37 of this title. Upon receipt of written notice from the department, the bank must pay the assessment to the department in quarterly installments by electronic payment/ACH debited effective September 15, December 15, March 15, and June 15 of each year, or by another method if directed to do so by the department.

(2) The assessment for a foreign bank branch or a foreign bank agency is based on its assessable assets and calculated in the manner described in §3.38 of this title. Upon receipt of a written invoice from the department, the foreign bank branch or foreign bank agency must pay the assessment to the department in quarterly installments, due on or before September 15, December 15, March 15, and June 15 of each year, or by another method if directed to do so by the department.

(3) A foreign bank representative office shall pay an annual assessment fee of $2,500 to cover the cost of examinations and all associated expenses unless the foreign bank also maintains a foreign bank branch or foreign bank agency in this state subject to assessment under paragraph (2) of this subsection. Upon receipt of a written invoice from the department, each foreign bank representative office to which this paragraph applies must pay its annual assessment to the department in a single installment, due on or before September 15 of each year. The department may require each foreign bank representative office to pay the annual assessment fee through electronic funds transfer.

(e) Review of assessment factors. The department will review all appropriations, revenue sources, expenditure patterns, and other revenues and costs related to examination and supervision of banks, foreign bank branches, foreign bank agencies, and present to the finance commission no less frequently than once each biennium such information and a calculation chart that sets forth the annual assessment factors.

(f) Interim adjustments.

(1)  If the size, condition, or other characteristics of a bank, foreign bank branch or foreign bank agency change sufficiently during a year to cause the institution to fall into a different assessable asset group or to be subject to a new or different surcharge based on a change in the institution's CAMELS composite rating, the department will adjust the annual assessment to the appropriate amount beginning with the first billed quarterly installment after the change.

(2) In the event of an acquisition or merger involving a surviving state bank, foreign bank branch, or foreign bank agency, the department will adjust the annual assessment to reflect the result of the acquisition or merger beginning with the first billed quarterly installment after the consummation of the transaction. The asset group will be calculated on the basis of the combined assessable assets of the surviving institution.

(3) A financial institution that becomes subject to this section during a fiscal year as a result of conversion, merger, branching, or other change during a fiscal year must pay to the department an assessment beginning in the quarter of the conversion, merger, or other change to reflect only the quarter or quarters of the year in which the institution is subject to this section.

(4) Each bank, foreign bank branch, and foreign bank agency must pay to the department the full quarterly installment of the assessment for the next three-month period on the due date of the installment without proration for any reason.

(g) Adjustment of an installment. The banking commissioner may, after review and consideration of actual and projected revenues and expenditures in the current fiscal year, lower the aggregate amount of an installment and bill each institution subject to assessment a proportionally lower amount, without the prior approval of the finance commission.

(h) Specialty examination fees.

(1) Examinations of fiduciary activities and other special examinations and investigations, including but not limited to examinations of bank holding companies, interstate branches of state banks in Texas as host state, affiliates, and third-party contractors, are subject to a separate charge to cover the cost of time and expenses incurred in these examinations.

(2) The fee for an examination under this subsection will be calculated at a rate not to exceed $110 per examiner hour, to recoup the salary expense of examiners plus a proportionate share of department overhead allocable to the examination function. The banking commissioner in the exercise of discretion may lower the rate in connection with a specific examination or investigation for equitable reasons, without the prior approval of the finance commission.

(3) In connection with an examination under this subsection, the regulated entity or other legally responsible party shall pay to the department the examination fee set forth in paragraph (2) of this subsection, and shall also pay to the department an amount for actual travel expenses incurred by the examiners, including mileage, public transportation, food, and lodging.

(i) Special assessments. The finance commission may approve a special assessment to cover material expenditures, such as major facility repairs and improvements and other extraordinary expenses.

Source: The provisions of this §3.36 adopted to be effective January 5, 1996, 20 TexReg 10994; amended to be effective March 21, 1997, 22 TexReg 2608; amended to be effective September 9, 1999, 24 TexReg 6969; amended to be effective September 4, 2003, 28 TexReg 7347; amended to be effective January 2, 2014, 38 TexReg 9481; amended to be effective November 5, 2015, 40 TexReg 7620; amended to be effective July 5, 2018, 43 TexReg 4451; amended to be effective July 11, 2021, 46 TexReg 4023.

§3.37. Calculation of Annual Assessment for Banks.

(a) Bank assessment calculation table. The annual assessment for a state bank is calculated as described in this section and paid as provided by §3.36 of this title (relating to Annual Assessments and Specialty Examination Fees), based on the values in the following table, as such values may be periodically adjusted in the manner provided by subsection (b) of this section. Certain terms used in this section and in the following table are defined in §3.36(b):

Figure: 7 TAC §3.37(a)

First determine the bank's assessable asset group, then: 

 (b) Adjustments for inflation. In this section, "GDPIPD" means the Gross Domestic Product Implicit Price Deflator, published quarterly by the Bureau of Economic Analysis, United States Department of Commerce. The "annual GDPIPD factor" is equal to the percentage change in the GDPIPD index values published for the first quarter of the current year compared to the first quarter of the previous year (the March-to-March period immediately preceding the calculation date), rounded to a hundredth of a percent (two decimal places).

  (1) Each September 1, the table in subsection (a) of this section, as most recently revised before such date pursuant to this subsection, may be revised as follows:

    (A) each marginal assessment factor listed in Step 3 of the table is increased (or decreased) by an amount proportionate to the measure of inflation (or deflation) reflected in the annual GDPIPD factor, rounded to six decimal places;

    (B) the base assessment amount listed in Step 4 for assessable asset group 1 is increased (or decreased) by an amount proportionate to the measure of inflation (or deflation) reflected in the annual GDPIPD factor, rounded to whole dollars; and

    (C) each base assessment amount listed in Step 4 for assessable asset groups 2 through 14 is adjusted to an amount equal to the maximum annual assessment possible for the next lower assessable asset group (without surcharge), rounded to whole dollars. For example, the base assessment amount for assessable asset group 2 is equal to the annual assessment (without surcharge) calculated under assessable asset group 1 for a bank with exactly $10 million in assessable assets.

  (2) If the table in subsection (a) of this section is revised for inflation (or deflation), then not later than August 1 of each year, the department shall calculate and prepare a revised table reflecting the inflation-adjusted values to be applied effective the following September 1, and shall provide each state bank with notice of and access to the revised table. At least once every four years, the department shall propose amendments to this section for the purpose of substituting a current revised table in subsection (a) of this section, and for such other purposes as may be appropriate.

Source: The provisions of this §3.37 adopted to be effective January 5, 1996, 20 TexReg 10994; amended to be effective September 9, 1999, 24 TexReg 6969; amended to be effective July 11, 2002, 27 TexReg 5961; amended to be effective September 4, 2003, 28 TexReg 7347; amended to be effective July 5, 2007, 32 TexReg 3977; amended to be effective January 3, 2008, 32 TexReg 9939; amended to be effective November 5, 2015, 40 TexReg 7620; amended to be effective January 5, 2017, 41 TexReg 10561; amended to be effective December 31, 2020, 45 TexReg 9413; amended to be effective September 8, 2022, 47 TexReg 5327; amended to be effective March 9, 2023, 48 TexReg 1291.

§3.38. Calculation of Annual Assessment for Foreign Bank Branches or Agencies.4

The annual assessment for a foreign bank branch or agency is calculated as described in §3.36 of this title (relating to Annual Assessments and Specialty Examination Fees), based on the values in the following table:

First determine the agency´s or branch´s assessable asset group, then:

Source: The provisions of this §3.38 adopted to be effective January 5, 1996, 20 TexReg 10994; amended to be effective September 9, 1999, 24 TexReg 6969.

Subchapter C. Foreign Bank Branches, Agencies and Representative Offices5

§3.40. Definitions.

The following words and terms, when used in this subchapter, have the following meanings unless the context clearly indicates otherwise:

(1)  Foreign bank branch or Texas branch --A Texas state branch proposed to be established or established and maintained by a foreign bank pursuant to the Finance Code, Chapter 204.

(2)  Foreign bank agency or Texas agency--A Texas state agency proposed to be established or established and maintained by a foreign bank pursuant to the Finance Code, Chapter 204.

(3)  Foreign bank representative office or Texas representative office--A Texas representative office proposed to be established or established and maintained by a foreign bank pursuant to the Finance Code, Chapter 204.

Source:  The provisions of this §3.40 adopted to be effective March 9, 2006, 31 TexReg 1643.

§3.41. Applications, Notices, and Reports Related to Foreign Bank Branches and Agencies.

(a) Application. To establish a Texas branch or agency, a foreign bank shall file with the banking commissioner an application for a license on the form prescribed by the commissioner. The application must:

(1)  be in English and be signed, sworn to and acknowledged by an officer of the foreign bank;

(2) be fully completed and provide the information and include as attachments the documentation specified in the application form and the department's instructions, including the information and documentation required under the Finance Code, §204.101, and such other information and documentation as the banking commissioner reasonably requests; and

(3) be accompanied by the application fees and applicable deposits required by §15.2 of this title (relating to Filing Fees and Cost Deposits).

(b) If a foreign bank has established an initial Texas branch or agency, the banking commissioner may waive one or more of the informational requirements of the license application form with respect to any additional Texas branches or agencies the foreign bank seeks to establish. However, payment of the application fee provided for in §15.2 of this title may not be waived.

(c)  Notices. A foreign bank that maintains a Texas branch or agency shall file with the banking commissioner:

(1)  the notices and applications required under the Finance Code, Chapter 204, including §§204.005, 204.008, 204.107 - 204.109 and 204.115;

(2)  if the foreign bank intends to establish a Texas representative office, a notice at least thirty days before the effective date of the opening of the office that states or includes:

(A)  a copy of any filings with other state or federal agencies in connection with the establishment of the office;

(B)  the street and mailing address and the telephone and fax numbers for the office;

(C)  the name and qualifications of the manager or officer in charge of the office and contact information for that person;

(D)  the Texas branch or agency or other office to which the Texas representative office will report and contact information for the responsible officer at that office;

(E)  a list of the activities in which the office will engage; and

(F)  a copy of the filed document evidencing compliance with the Finance Code, §201.102;

(G)  a list of activities to be engaged in at the office; and

(H)  date on which the foreign bank plans to commence business at the office; and

(3)  if the foreign bank intends to establish, relocate or close a loan production office, the notice required under §3.91 of this title (relating to Loan Production Offices).

(d)  Reports. A foreign bank that maintains a Texas branch or agency shall file with the banking commissioner the following reports:

(1)  the reports required under the Finance Code, Chapter 204, including §204.002, and, to the extent applicable, §§3.51-3.62 of this title (relating to Pledge and Maintenance of Assets by Foreign Bank Licensed to Maintain Texas State Branch or Agency);

(2)  an annual report, within 120 days after the close of the foreign bank's fiscal year, that is in English or accompanied by an English translation and is signed, sworn to and acknowledged by one of the authorized officers, managers, or agents transacting business in this state, and that includes:

(A)  a copy of the most recent audited financial statement of the foreign bank, expressed in the currency of the country of its incorporation or organization and in United States currency;

(B)  a letter from the certified public accountant, chartered accountant, or similar independent service provider of the foreign bank certifying that the statements have been prepared in accordance with generally accepted accounting principles of the home country of the foreign bank;

(C)  a general description of the foreign bank's business activities;

(D)  the location and a general description of the foreign bank's headquarters office if the office has been relocated since the last annual report filed under this paragraph;

(E)  disclosure of all material legal proceedings in which the foreign bank or any of its subsidiaries has been named as a defendant that could result in a material adverse impact on the financial condition of the foreign bank, and a description of such potential impact, quantified to the extent feasible;

(F)  a listing of the foreign bank's:

(i)  board of directors;

(ii)  executive officers; and

(iii)  overseas operations by office; and

(G)  a copy of the foreign bank's organizational chart by functional department.

Source: The provisions of this §3.41 adopted to be effective March 9, 2006, 31 TexReg 1643.

§3.42. Foreign Bank Branch and Agency Records.6

A foreign bank branch or agency shall maintain the following records in English, or accompanied by an English translation, at its authorized location and make the records available for examination by the department or as otherwise requested by the banking commissioner:

(1)  the records required under the Finance Code, Chapter 204, including §204.002, and, to the extent applicable, §3.60 and §3.61 of this title (relating to Pledge and Maintenance of Assets by Foreign Bank Licensed to Maintain Texas State Branch or Agency);

(2)  separate accounting records relating to its assets and liabilities and, if available, its income and expenses resulting from the branch's or agency's operations in this state;

(3)  records relating to all filings or permits required by federal regulators;

(4)  records of all credit balances, including:

(A) a list of each credit balance;

(B) the contractual terms applicable to each credit balance; and

(C) the contractual terms specifying the completion of the transactions to which the credit balance relates;

(5) records listing all representative offices, loan production offices, or other subsidiaries maintained in this state by the foreign bank branch or agency or by the foreign bank that controls the branch or agency; and

(6) such other records that the banking commissioner may require.

Source: The provisions of this §3.42 adopted to be effective September 13, 1996, 21 TexReg 8451; amended to be effective March 9, 2006, 31 TexReg 1643.

§3.43. Credit Balance of Funds.

(a) A foreign bank branch or agency may not receive deposits except as specifically authorized under the Finance Code, §204.105(b). A foreign bank branch or agency may receive funds from a person and maintain a credit balance in accordance with the Finance Code, §204.105(b).

(b) A credit balance includes:

(1) proceeds of loans to customers where such proceeds are not immediately disbursed;

(2) loan payments from customers;

(3) funds delivered by customers to settle letters of credit accounts with the branch or agency prior to settlement date;

(4) proceeds of bills of exchange, drafts, notes, acceptances, and other obligations for the payment of money arising out of the purchase and sale (but not discount) of same;

(5) funds received from customers to cover currency transactions or as the result of currency transactions consummated by the branch or agency on behalf of customers;

(6) funds received for transmission to another place;

(7) fund arising out of repurchase agreements, federal funds transactions, and other types of purchase, sale, or borrowing transactions in interbank markets;

(8) proceeds of collections made for customers´ accounts;

(9) accounts due to other offices or entities controlled by or under common control with the foreign bank corporation that owns the foreign bank branch or agency; or

(10) funds received from customers as security for a loan.

(c) Credit balances may not remain in the foreign bank branch or agency after the completion of all transactions to which they relate.7

Source: The provisions of this §3.43 adopted to be effective September 13, 1996, 21 TexReg 8452; amended to be effective March 9, 2006, 31 TexReg 1643; amended to be effective July 5, 2018, 43 TexReg 4451.

§3.44.  Statements of Registration, Notices and Filings Related to Foreign Bank Representative Offices.

(a)  General. A foreign bank may establish a representative office in this state whether or not the foreign bank is authorized to maintain a Texas branch or agency.

(b)  Applicability. This section applies only to a foreign bank that does not maintain a Texas branch or agency. A foreign bank that maintains a Texas branch or agency is not subject to this section and may establish a representative office by providing the notice required under §3.41(c) of this title (relating to Applications, Notices and Reports Related to Foreign Bank Branches and Agencies).

(c)  Statement of registration. To establish a representative office in this state, a foreign bank shall file with the banking commissioner a statement of registration on the form prescribed by the department. The statement of registration must:

(1)  be in English and be signed, sworn to and acknowledged by an officer of the foreign bank;

(2)  be fully completed and provide the information and include as attachments the documentation specified in the registration form and the department's instructions, including the information and documentation required under the Finance Code, §204.201, and such other information and documentation as the banking commissioner reasonably requests; and

(3)  be accompanied by the registration fee established in §15.2(b) of this title (relating to Filing and Investigation Fees).

(d)  Commencement of operations. A foreign bank may establish its representative office upon receipt of written confirmation from the banking commissioner that the statement of registration is complete and all required fees have been paid.

(e)  Separate statement of registration required. A statement of registration must be filed for each representative office a foreign bank establishes in this state. If a foreign bank has established an initial representative office in accordance with this section, the banking commissioner may waive one or more of the informational requirements of the statement of registration form with respect to any additional Texas representative office the foreign bank seeks to establish. However, payment of the registration fee provided for in §15.2(b) of this title (relating to Filing and Investigation Fees) may not be waived.

(f)  Notices. A foreign bank that maintains a representative office in this state shall file the following notices in English with the banking commissioner:

(1)  the change of control notice required under the Finance Code, §204.005;

(2)  notice of the closing of a representative office in this state at least 30 days before the effective date of the closing;

(3)  notice of a change in location containing the street, post office and mailing address of the new location at least 30 days before the effective date of the relocation; and

(4)  copies of other notices or applications filed with a federal regulator affecting the representative office in this state, at the time filed with the federal regulator.

Source: The provisions of this §3.44 adopted to be effective March 9, 2006, 31 TexReg 1643; amended to be effective July 5, 2018, 43 TexReg 4451; amended to be effective September 8, 2022, 47 TexReg 5327.

§3.45. Records of a Representative Office.8

(a) A representative office established in this state by a foreign bank shall maintain the following records in English or accompanied by an English translation and make the records available for examination by the department or as otherwise requested by the banking commissioner:

(1) copies of all reports sent to the foreign bank by the representative office;

(2) copies of all policies pertaining to the solicitation, origination, and accounting of loans between the representative office and other offices of the foreign bank;

(3) a description of all activities in which the representative office is engaged and its target market;

(4) assets, liabilities, and income and expense journals for the representative office;

(5) the organizational chart of the representative office, including officer titles, functions, and reporting lines;

(6) marketing, business plans, and budgets for the representative office;

(7) copies of all lease agreements on rented office space and fixed assets in this state, including details of the sharing arrangement covering the office space if the office space is shared with another unit of the foreign bank;

(8) a copy of the most recent audited annual report of the foreign bank, in English;

(9)  copies of all insurance policies covering fraud and fixed assets that relate to the representative office;

(10) a list of other operations and affiliates of the foreign bank in the United States;

(11) for all extensions of credit solicited or handled by the representative office:

(A) copies of the credit approval from the domestic agency, branch facility, or foreign bank corporation, which may authorize the representative office to sign and execute the loan contract and related documentation. The approval may be in the form of a facsimile transmission or telex from the applicable foreign bank office;

(B) complete copies of all loan agreements and all subsequent revisions and amendments; and

(C) complete copies of credit and collateral documentation, including borrowing base calculations and reports; and

(12) to the extent not identified in paragraphs (1) - (11) of this subsection, the records required under the Finance Code, §204.002; and

(13) such other records the banking commissioner may require.

(b) A representative office affiliated with a foreign bank branch or agency in this state may maintain records at the office of the foreign bank branch agency.

Source: The provisions of this §3.45 adopted to be effective September 13, 1996, 21 TexReg 8453; amended to be effective March 9, 2006, 31 TexReg 1643.

Subchapter D. Pledge and Maintenance of Assets by Foreign Bank Licensed to Maintain Texas State Branch or Agency

§3.51. Authority, Purpose and Scope. 

(a)  Authority.  This subchapter is adopted under the authority of Finance Code, Title 3, Subtitle G, Chapter 204, Subchapter B, particularly Finance Code, §§204.113 and 204.114.  Subchapter B authorizes a foreign bank to establish and maintain a Texas state branch or agency upon receiving a license from the Texas Banking Commissioner.  Section 204.113 authorizes the banking commissioner to require a foreign bank so licensed to deposit and pledge to the banking commissioner assets in Texas in an amount and subject to such conditions as may be determined or authorized by rule.  Section 204.114 authorizes the banking commissioner to require a foreign bank to satisfy the ratio of Texas state branch or agency assets to liabilities as may be determined or authorized by rule.

(b)  Purpose.  This subchapter implements Finance Code, §§204.113 and 204.114.  It establishes the amount of assets that a foreign bank subject to its provisions must deposit and pledge and the conditions related to the pledge.  The subchapter also authorizes the banking commissioner to require a foreign bank to maintain a specific ratio of assets to liabilities as the banking commissioner deems necessary or desirable to address supervisory concerns.

(c)  Scope.  This subchapter applies to a foreign bank that is licensed to establish and maintain one or more Texas state branches or Texas state agencies under Finance Code, Title 3, Subtitle G, Chapter 204, Subchapter B, and that carries nonrelated liabilities on the books, accounts and records of such branch, branches, agency or agencies.

Source: The provisions of this §3.51 adopted to be effective November 12, 2003, 28 TexReg 9823.

§3.52. General Definitions. 

Unless defined otherwise in this section, words and terms used in this subchapter that are defined in Finance Code, §31.002, have the same meanings as defined in the Finance Code.  The following words and terms, when used in this subchapter, have the following meanings unless the context clearly indicates otherwise:

(1)  Asset pledge - The total amount of assets a foreign bank must deposit and pledge to the banking commissioner and maintain on deposit at all times.

(2)  Call Report - The FFIEC quarterly, consolidated report of assets and liabilities of United States branches and agencies of foreign banks, currently reported on FFIEC 002.

(3) Depository - An unaffiliated, FDIC-insured state or national bank in Texas, or a federal reserve bank.

(4)  FFIEC - The Federal Financial Institutions Examination Council.

(5)  Foreign bank - A foreign bank or foreign bank corporation, as defined in Section 1(b)(7), International Banking Act (12 USC Section 3107(7)), that is licensed under Finance Code, Chapter 204, to establish and maintain a Texas state branch or Texas state agency.

(6)  ROCA - The rating system used by the Federal Reserve Board, the Office of the Comptroller of the Currency, and state banking regulatory authorities that measures risk management, operation controls, compliance and asset quality and thereby determines the condition of a foreign bank's branch or agency or commercial lending subsidiary in the United States.

(7)  Texas state branch - One or more branches established and maintained in Texas by a foreign bank under a license issued pursuant to Finance Code, Chapter 204.  The term also includes a foreign bank branch as referred to in subchapters B and C of this title (relating to General state bank regulations and Foreign Bank Agencies, respectively).

(8)  Texas state agency - One or more agencies established and maintained in Texas by a foreign bank under a license issued pursuant to Finance Code, Chapter 204.  The term also includes a foreign bank agency as referred to in subchapters B and C of this title (relating to General state bank regulations and Foreign Bank Agencies, respectively).

(9)  Nonrelated deposit liabilities - The liabilities to nonrelated parties consisting of deposits and credit balances reported in the Call Report in accordance with Call Report instructions, currently reported on line 4.a. of Schedule RAL-Assets and Liabilities.

(10)  Nonrelated other  liabilities - The liabilities to nonrelated parties, exclusive of nonrelated deposit liabilities, reported in the Call Report in accordance with Call Report instructions, currently reported on lines 4.b-4.g. of Schedule RAL-Assets and Liabilities.  Nonrelated other liabilities include federal funds purchased and sold under agreements to repurchase, other borrowed money, branch or agency liability on acceptances executed and outstanding, trading liabilities and other liabilities to nonrelated parties.

Source: The provisions of this §3.52 adopted to be effective November 12, 2003, 28 TexReg 9823; amended to be effective July 5, 2018, 43 TexReg 4451.

§3.53. Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated  Deposit Liabilities. 

(a)  Asset pledge required. A foreign bank that maintains and operates a Texas state branch or agency, and carries nonrelated deposit liabilities on the books and records of its Texas state branch or agency as liabilities of such branch or agency, must pledge and keep assets on deposit with a depository in accordance with this subchapter.

(b)  Amount of deposit. Subject to a minimum deposit of $100,000, the amount of assets required to be deposited under subsection (a), based upon the lower of principal amount or market value, is equal to the lesser of:

(1)  one percent of the average total nonrelated liabilities, consisting of nonrelated deposit liabilities and nonrelated other  liabilities,  for the previous calendar quarter of such branch or agency appearing on the books, accounts and records of such branch or agency; or

(2)  $100 million.

(c) Pledge of assets to banking commissioner.  The assets required to be deposited under this section are deemed to be pledged to the banking commissioner for the benefit of the creditors and depositors of the Texas state branch's or agency's business in this State.  Notwithstanding any provision of the Uniform Commercial Code to the contrary, the banking commissioner is deemed to have a security interest in such assets. The foreign bank must ensure that the banking commissioner has a perfected, first-priority security interest in such assets under applicable law at all times.

(d) Projection of liabilities.  Prior to its first Texas state branch or agency carrying nonrelated deposit liabilities on the books and records of such branch or agency, a foreign bank must deposit assets based upon such branch's or agency's projection of total nonrelated liabilities, consisting of nonrelated deposit liabilities and nonrelated other liabilities, at the end of its first year of such operations.

(e) Increase in amount of required deposit.  The banking commissioner may increase the amount required to be deposited by a foreign bank under this section if necessary or desirable to:

(1)  maintain the Texas state branch or agency in sound financial condition;

(2) protect the depositors, creditors and the public interest in Texas; or

(3) support public confidence in the business of the Texas state branch or agency.

Source: The provisions of this §3.53 adopted to be effective November 12, 2003, 28 TexReg 9823; amended to be effective September 8, 2022, 47 TexReg 5327.

§3.54. Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Only Nonrelated Other Liabilities. 

(a)  Asset pledge not generally required.  Subject to subsection (b) of this section, a foreign bank that carries only nonrelated other  liabilities on the books and records of its Texas state branch or agency, and does not carry nonrelated deposit liabilities, is not required to pledge assets under this subchapter.

(b)  Authority of banking commissioner to require asset pledge.  The banking commissioner, in his sole discretion based upon the factors identified in §3.53(e) of this title (relating to Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated Deposit Liabilities), may require a foreign bank that carries only nonrelated other liabilities on the books and records of its Texas state branch or agency to  pledge assets in accordance with §3.53 of this title (relating to Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated Deposit Liabilities).  In such event, the bank must comply with all provisions of this subchapter relating to the deposit and pledge of assets.

Source: The provisions of this §3.54 adopted to be effective November 12, 2003, 28 TexReg 9823.

§3.55. Calculation of Liabilities. 

(a)  Calculation of liabilities in accordance with Call Report.  For purposes of §3.53(b), and except as otherwise provided in this subchapter, a foreign bank must:

(1) calculate the nonrelated deposit liabilities and nonrelated other liabilities of its Texas state branch or agency in accordance with the instructions in the FFIEC Call Report; and

(2)  calculate the asset pledge on the same basis on which it calculates quarterly averages for Call Report purposes (currently, the average of liabilities subject to asset pledge either as of the close of business for each day of the calendar quarter or as of the close of business on each Wednesday during the calendar quarter).

(b)  Aggregation.  A foreign bank that maintains more than one Texas state branch or agency must calculate the amount of the required asset pledge on an aggregate basis.

Source: The provisions of this §3.55 adopted to be effective November 12, 2003, 28 TexReg 9823; amended to be effective July 5, 2018, 43 TexReg 4451.

§3.56. Asset Pledge Report and Additional Deposits. 

(a)  Report of liabilities and pledged assets.  Each foreign bank that maintains a Texas state branch or agency that carries nonrelated liabilities, consisting of nonrelated deposit liabilities and nonrelated other liabilities, on the books and records of its Texas state branch or agency as liabilities of such branch or agency, must prepare and submit to the banking commissioner, on a form prescribed by the banking commissioner, a report showing:

(1) the average total nonrelated  liabilities, consisting of nonrelated deposit liabilities and nonrelated other liabilities, of its Texas state branch or agency for the previous calendar quarter, calculated in accordance with §3.55 of this title (relating to Calculation of Liabilities); and

(2)  if assets are deposited and pledged for the account of the banking commissioner under §3.53 of this title (relating to Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated Deposit Liabilities), the assets deposited and pledged and the total value of such assets as of the end of the quarter for which liabilities are reported under subsection (a)(1) of this section.

(b)  Authentication and submission of report.  A duly authorized officer of the foreign bank must sign the report required under subsection (a) of this section and certify that the report is true and correct.  The report must be submitted to the banking commissioner no later than the date the foreign bank must submit the Call Report for the end of the quarter for which the calculation is made to the appropriate Federal Reserve Bank according to Call Report instructions.

(c)  Additional deposits to satisfy the pledge requirement.  A foreign bank must deposit into the pledge account such additional assets as may be required, based upon the quarterly calculation, to satisfy the pledge requirement established in §3.53 of this title (relating to Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated Deposit Liabilities).  The foreign bank must deposit the additional assets no later than the date on which the bank must submit the Call Report for the end of the quarter for which the calculation is made.

Source: The provisions of this §3.56 adopted to be effective November 12, 2003, 28 TexReg 9823.

§3.57. Excluded Liabilities. 

The following liabilities of a foreign bank's Texas state branch or agency are not included for purposes of calculating the amount of assets required to be pledged under §3.53 of this title (relating to Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated Deposit Liabilities):

(1)  amounts due and other liabilities to other offices, agencies, branches and affiliates of the foreign bank;

(2)  liabilities arising from repurchase agreements and other similar instruments to the extent secured by collateral;

(3)  reserves for possible loan losses and other contingencies; and

(4)  such other liabilities as the banking commissioner may determine.

Source: The provisions of this §3.57 adopted to be effective November 12, 2003, 28 TexReg 9823.

§3.58. Eligible Assets and Conditions. 

(a)  Eligible assets.  In addition to the assets consisting of dollar deposits and investment securities described in Finance Code, §204.113(a), a foreign bank may deposit the following assets to satisfy the pledge requirement established in §3.53 of this title (relating to Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated Deposit Liabilities):

(1)  reserves maintained with a federal reserve bank in or outside this state;

(2) United States and non-United States debt obligations that are rated investment grade by a recognized United States rating service; and

(3)  assets specifically approved by the banking commissioner upon prior written application.

(b) Asset pledge conditions and limitations.  Unless the banking commissioner specifically permits otherwise, the following conditions and limitations apply to the asset pledge:

(1)  Assets must be payable in the United States and payable in United States dollars; and

(2)  Assets must be capable of being promptly sold under ordinary market conditions at a fair market value determined by reliable and continuously available price quotations, based upon actual transactions on an auction or similarly available daily bid and ask price market.

(c)  Authority of banking commissioner to impose additional conditions.  With respect to any asset, the commissioner may determine that, for purposes of this subchapter, a foreign bank must hold such asset in such form or subject to such conditions as the banking commissioner may prescribe.  The banking commissioner may expressly disallow one or more otherwise eligible assets, either for all foreign banks or a specific foreign bank.  All assets are subject to any additional conditions or limitations deemed by the banking commissioner to be necessary or desirable.

Source: The provisions of this §3.58 adopted to be effective November 12, 2003, 28 TexReg 9823.

§3.59. Deposit Agreement and Conditions. 

(a)  Approved deposit agreement.  A foreign bank and a depository must execute a deposit agreement approved by the banking commissioner before the foreign bank may deposit assets for purposes of Finance Code, §204.113, and this subchapter.  In addition to any other terms and conditions that are not inconsistent with those listed in this section or imposed by the banking commissioner, the deposit agreement must include the terms and conditions set forth in subsections (b) through (m) of this section.

(b)  Limitation on assets that may be deposited.  Only assets eligible to be pledged under §3.58 of this title (relating to Eligible Assets and Conditions) may be deposited into the pledge account.

(c) Assets pledged to banking commissioner.  The assets must be pledged to the banking commissioner for the benefit of the creditors and depositors of the Texas state branch's or agency's business in this State.  The banking commissioner must be provided with, and is deemed to have, a security interest in the pledged assets.

(d)  Assets held as special deposit.  The depository must hold the assets deposited under the agreement as a special deposit free of any lien, charge, right of set-off, credit, or preference in connection with any claim of the depository against the foreign bank or the Texas state branch or agency.  The depository may not accept any asset under the agreement that is not accompanied by documentation necessary to facilitate transfer of title.

(e)  Depository to furnish receipt.  The depository must furnish the foreign bank, upon the deposit of assets under the depository agreement, a receipt or statement as evidence of the deposit.  The receipt or statement must identify the deposit as having been made pursuant to Finance Code, §204.113, and under the deposit agreement, and must state the amount of the deposit and, with respect to the deposit of securities, a description of each security deposited.

(f)  Release of securities by depository.  The depository must release deposited assets to the foreign bank upon written request:

(1)  when accompanied by a certificate, as described in subsection (g) of this section, signed by a duly authorized officer of the foreign bank; or

(2)  upon receipt of the banking commissioner's written order to release such part of the deposited assets under such conditions and terms as the order may specify.

(g)  Model certificate.  A duly authorized officer of the foreign bank must execute the following or a similar certificate before making a withdrawal under subsection (f)(1) of this section:

It is hereby certified that the aggregate value of securities and/or funds remaining on deposit pursuant to the Deposit Agreement after this withdrawal or substitution amounts to $_________, valued at the lower of principal amount or market value, and that such amount is at least equal to the amount required to be deposited under Finance Code, §204.113, and 7 TAC §3.51 et seq.  The amount required to be maintained on deposit, calculated in accordance with this subchapter, is $____________ as of this date.

(h)  Depository to furnish monthly statement of all transactions.  The depository must furnish to the foreign bank, at least once in each calendar month, a statement of all transactions in the pledge account since the closing date of the previous statement.  The statement must include a listing of the securities and/or the amount of funds on deposit as of the closing date of the statement.  The depository must simultaneously send a copy of the statement to the banking commissioner.

(i)  Depository may pay interest.  So long as the Texas state branch or agency continues business in the ordinary course, the depository may pay interest earned on the assets in the pledge account in accordance with such arrangements as may be made between the depository and the foreign bank.

(j)  Responsibility of depository with respect to deposited securities.  Except as provided in this subsection, a depository must hold securities deposited under the deposit agreement separate and apart from all other securities and must permit duly authorized representatives of the foreign bank or of the banking commissioner to examine and compare such securities.  A depository may utilize a central depository, clearing corporation or book entry system to hold securities deposited under the deposit agreement, provided that the records of the central depository, clearing corporation or book entry system show that the depository holds the securities as principal or as agent or as custodian of its customers.  The depository must maintain adequate records to demonstrate the disposition of any book entry deposits.

(k)  Safeguarding of deposited securities.  The depository must give the same degree of care to the safekeeping, handling and shipping of deposited securities that the depository would give to its own securities.

(l)  Banking commissioner not to pay for services rendered.  The banking commissioner is not required to pay for any of the services rendered or any expenses incurred by the depository or the foreign bank under or in connection with 7 TAC §§3.51-3.61 or the deposit agreement.

(m)  Termination of deposit agreement by foreign bank or depository.  The foreign bank or the depository may terminate the deposit agreement by giving the other party at least sixty days written notice of the termination, or such shorter notice as the banking commissioner may approve, provided that no termination by the foreign bank or the depository is effective until:

(1)  the foreign bank has designated another depository;

(2)  the foreign bank has provided the banking commissioner with the name and address of the successor depository;

(3)   the foreign bank and the successor depository have executed a deposit agreement that conforms to this section and has been approved by the banking commissioner; and

(4)  the depository has released to foreign bank all the deposited assets in accordance with written instructions from the foreign bank approved by the banking commissioner.

(n)  Additional terms and conditions.  The banking commissioner may at any time impose different or additional terms and conditions upon the deposit agreement as deemed necessary or desirable.

(o)  Termination of the right to substitute or withdraw assets.  Upon notice to the foreign bank and the depository, the banking commissioner may terminate or suspend the authority of the foreign bank under subsection (f)(1) of this section to substitute or withdraw deposited assets.

(p)  Termination of deposit agreement by banking commissioner.  Upon notice to the foreign bank and the depository, the banking commissioner may terminate the deposit agreement and order the depository to release the pledged assets on such terms as are specified in the order if the foreign bank or the depository fails to comply with any term of the deposit agreement required by this section or with any other terms and conditions imposed by the banking commissioner under subsection (n) of this section.

Source: The provisions of this §3.59 adopted to be effective November 12, 2003, 28 TexReg 9823.

§3.60. Record of Deposited and Withdrawn Assets. 

(a)  Retention of receipts of statements.  A foreign bank must retain for three years from the date of receipt the originals of all receipts or statements obtained from a depository under §3.59 of this title (relating to Deposit Agreement and Conditions).  The foreign bank must make such originals available to the department at the time of the examination of such branch or agency.

(b)  Withdrawal request and certificate. Coincidentally with any withdrawal request authorized pursuant to §3.59 of this title (relating to Deposit Agreement and Conditions), a foreign bank must furnish the banking commissioner a copy of the withdrawal request and the certificate required under §3.59(g) of this title (relating to Deposit Agreement and Conditions).

Source: The provisions of this §3.60 adopted to be effective November 12, 2003, 28 TexReg 9823.

§3.61. Record of Assets and Liabilities. 

(a)  Maintenance of record of liabilities.  A foreign bank must maintain a record of the liabilities of the foreign bank appearing on the books, accounts and records of its Texas state branch or agency as liabilities of such branch or agency as determined in accordance with §3.55 of this title (relating to Calculation of Liabilities) and §3.56 of this title (relating to Asset Pledge Report and Additional Deposits).  The record must be maintained in permanent ledger form.  A foreign bank authorized to maintain more than one branch or agency in this State must maintain the record on a consolidated basis.  No specific format for the record is prescribed.  It must, however, contain such information in sufficient detail as will permit ready verification of its accuracy.

(b)  Maintenance of record of assets.  In addition to the record of liabilities required to be maintained by subsection (a) of this section, a foreign bank must maintain an itemized record of assets deposited for the account of the banking commissioner under  §3.53 of this title (relating to Asset Deposit and Pledge Requirement Applicable to Branch or Agency with Nonrelated Deposit Liabilities).  The record must describe each deposited asset and include the value of such asset, at principal or market value, whichever is lower.

(c)  General requirements applicable to records.  The records required to be maintained under subsections (a) and (b) must:

(1)  support the calculations and asset lists and valuations contained in the quarterly asset pledge report required under §3.56 of this title (relating to Asset Pledge Report and Additional Deposits);

(2)  be authenticated by the signature of a duly authorized officer of the foreign bank; and

(3)  be retained for three years from the date the records are received or generated.

(d)  Additional records and reports.  The banking commissioner may require a foreign bank subject to this subchapter to maintain records and submit reports in addition to those required by this section and §3.60 of this title (relating to Record of Deposited and Withdrawn Assets) as deemed necessary or desirable.

Source: The provisions of this §3.61 adopted to be effective November 12, 2003, 28 TexReg 9823.

§3.62. Asset Maintenance. 

(a)  Maintenance of specific ratio not generally required.  Subject to subsection (b) of this section, a foreign bank is not required to maintain a specific ratio of assets to liabilities appearing on the books, accounts and records of its Texas state branch or agency.

(b)  Authority of banking commissioner to require maintenance of specific ratio.  The banking commissioner may require a foreign bank to maintain a specific ratio of assets to liabilities as deemed necessary or desirable.  

(c) Determination of Assets and Liabilities.  The banking commissioner will determine the assets and liabilities that may or must be included for purposes satisfying the requirements of this section consistent with Finance Code, §204.114.

Source: The provisions of this §3.62 adopted to be effective November 12, 2003, 28 TexReg 9823; amended to be effective September 8, 2022, 47 TexReg 5327.

Subchapter E. Banking House and Other Facilities

§3.91. Loan Production Offices.

(a) Loan production activities. A Texas state bank may, to the extent authorized by its board of directors, engage in loan production activities at a site other than the home office or a branch of the bank, and may use the services of, and compensate, persons not employed by the bank in its loan production activities. Subject to the requirements of subsection (b) of this section, the bank or its operating subsidiary may establish a loan production office (LPO) at which an employee or agent of the bank or of its operating subsidiary accepts loan applications, provided that the loan is made at the home office or a branch of the bank or at an office of the operating subsidiary located on the premises of, or contiguous to, the home office or branch of the bank. A LPO is not a branch within the meaning of Finance Code, §31.002(a)(8), so long as it does not engage the public in the business of banking as defined by Finance Code, §31.002(a)(4), including making loans, receiving deposits, and paying withdrawals, drafts, or checks. All such deposit or withdrawal activity must be performed by the state bank customer in person at the home office or a branch, or by mail, electronic transfer, or similar transfer method with the home office or a branch.

(b)  Required information. Pursuant to Finance Code, §32.204(b), a Texas state bank shall notify the banking commissioner of its intent to establish a new LPO. The banking commissioner must be notified in writing before the 31st day preceding the date of establishment of the LPO, except that the banking commissioner in the exercise of discretion may waive or shorten the period. The written notification must include the physical address of the planned LPO, a list of the specific activities to be performed at the planned LPO, the anticipated date for the establishment of the LPO, and other information which the banking commissioner may reasonably request.

(c) Relocation or closure of a LPO. A Texas state bank which seeks to relocate or close an established LPO, shall notify the banking commissioner in writing before the fifth day preceding the date of the planned relocation or closure of the LPO. The written notification must include the physical address of the relocated or closed LPO, the anticipated date for the closure or relocation of the LPO, and other information which the banking commissioner may reasonably request.

(d) Exemption: temporary LPO. Subsections (b) and (c) of this section do not apply to a LPO which operates for less than a total of 21 days in any one 12-month period. Instead, state banks shall register the location of a temporary LPO with the banking commissioner no later than the tenth day after such office is opened. As a part of such notice, the bank may indicate the anticipated repeated use of such office through the year. For example, a temporary LPO in a convention or exposition hall used in connection with trade shows may be registered once each year with an estimate of usage throughout the year.

(e)  Transactions with management and affiliates. A state bank establishing a LPO involving the purchase or lease of personal or real property from an officer, director, manager, managing participant, or principal shareholder or participant of the bank or an affiliate of the bank, must comply with the provisions of the Finance Code, §33.109, and §3.22 of this title (relating to Sale or Lease Agreements With an Officer, Director, or Principal Shareholder of the Bank or of an Affiliate of the Bank).

(f)  Out-of-state banks. A bank not domiciled or primarily located in this state must comply with the provisions of the Finance Code, Chapter 201, Subchapter B (§§201.101 et seq.), to establish a LPO in this state.

(g)  Foreign bank LPOs. A banking corporation or association incorporated or organized under the laws of a jurisdiction other than the United States or a state, territory, commonwealth, or other political subdivision of the United States, must comply with the provisions of the Finance Code, Chapter 201, Subchapter B (§§201.101 et seq.), and Finance Code, Chapter 204, to establish an LPO, unless the LPO will be an office of a Federal branch regulated by the Office of the Comptroller of the Currency (OCC). In the latter case, the Federal branch must comply with subsection (h) of this section.

(h)  Federal branch LPO. A Federal branch may establish an LPO in this state by complying with the provisions of Finance Code, Chapter 201, Subchapter B (§§201.101 et seq.), and by notifying the banking commissioner of its intent to establish the LPO.

(1)  The Federal branch shall notify the banking commissioner in writing on or before the 31st day preceding the date of establishment of the LPO, except that the banking commissioner may waive or shorten the period if the banking commissioner does not have a significant supervisory or regulatory concern regarding the Federal branch or its planned LPO. The written notification must include the physical address of the planned LPO, a list of the specific activities to be performed at the planned LPO, the anticipated date for the establishment of the LPO, documentation evidencing the approval of the OCC, and such other information as the banking commissioner may reasonably request.

(2)  To relocate or close an existing LPO in this state, a Federal branch shall notify the banking commissioner in writing on or before the tenth day following the date of the relocation or closure of the LPO. The written notification must include the physical address of the LPO, the date for its closure or relocation, documentation evidencing the approval or acquiescence of the OCC, and such other information as the banking commissioner may reasonably request.

(3)  An LPO of a Federal branch established in compliance with this section is not subject to examination by the banking commissioner under, or subject to any fee imposed by, Finance Code, Chapter 204.

Source: The provisions of this §3.91 adopted to be effective November 22, 1996, 21 TexReg 11098; amended to be effective March 9, 2006, 31 TexReg 1643; amended to be effective November 7, 2013, 38 TexReg 7683; amended to be effective May 7, 2015, 40 TexReg 2410; amended to be effective September 8, 2022, 47 TexReg 5327.

§3.92. User Safety at Unmanned Teller Machines.

(a) Definitions. Words and terms used in this subchapter that are defined in the Finance Code, §59.301, have the same meanings as defined in the Finance Code.

(b) Measurement of candlefoot power. For purposes of measuring compliance with the Finance Code, §59.307, candlefoot power should be determined under normal, dry weather conditions, without complicating factors such as fog, rain, snow, sand or dust storm, or other similar condition.

(c) Leased premises.

(1) Noncompliance by landlord. Pursuant to the Finance Code, §59.306, the landlord or owner of property is required to comply with the safety procedures of the Finance Code, Chapter 59, Subchapter D, if an access area or defined parking area for an unmanned teller machine is not controlled by the owner or operator of the unmanned teller machine. If an owner or operator of an unmanned teller machine on leased premises is unable to obtain compliance with safety procedures from the landlord or owner of the property, the owner or operator shall notify the landlord in writing of the requirements of the Finance Code, Chapter 59, Subchapter D, and of those provisions for which the landlord is in noncompliance.

(2) Enforcement. Noncompliance with safety procedures required by the Finance Code, Chapter 59, Subchapter D, by a landlord or owner of property after receipt of written notification from the owner or operator constitutes a violation of the Finance Code, Chapter 59, Subchapter D, which may be enforced by the Texas Attorney General.

(d) Safety evaluations.

(1) The owner or operator of an unmanned teller machine shall evaluate the safety of each machine on a basis no less frequently than annually.

(2) The safety evaluation shall consider at the least the factors identified in the Finance Code, §59.308.

(3) The owner or operator of the unmanned teller machine may provide the landlord or owner of the property with a copy of the safety evaluation if an access area or defined parking area for an unmanned teller machine is not controlled by the owner or operator of the machine.

(e) Notice. An issuer of access devices shall furnish its customers with a notice of basic safety precautions that each customer should employ while using an unmanned teller machine. The notice must be personally delivered or sent to each customer whose mailing address is in this state, according to records for the account to which the access device relates, and may be included with other disclosures related to the access device, including an initial or periodic disclosure statement furnished under the Electronic Fund Transfer Act (15 U.S.C. §1693 et seq.). The notice may be delivered electronically if permissible under Business & Commerce Code, §322.008.

(1) When notice is required. The issuer must furnish the notice to its customer whenever an access device is issued or renewed. If the issuer furnishes an access device to more than one customer on the same account, the issuer is not required to furnish the notice to more than one of the customers.

(2) Content of notice. The notice of basic safety precautions required by this subsection may include recommendations or advice regarding:

(A) security at walk-up and drive-up unmanned teller machines, such as recommendations that the customer should:

(i) remain aware of surroundings and exercise caution when withdrawing funds;

(ii) inspect an unmanned teller machine before use for possible tampering, or for the presence of an unauthorized attachment that could capture information from the access device or the customer's personal identification number;

(iii) refrain from displaying cash and put it away as soon as the transaction is completed; and

(iv) wait to count cash until the customer is in the safety of a locked enclosure, such as a car or home;

(B) protection of the customer's code or personal identification number, such as a recommendation that the customer ensure no one can observe entry of the customer's code or personal identification number;

(C) safeguarding and protection of the customer's access device, such as a recommendation that the customer treat the access device as if it were cash, and if the access device has an embedded chip, that the customer keep the access device in a safety envelope to avoid undetected and unauthorized scanning;

(D) procedures for reporting a lost or stolen access device and for reporting a crime;

(E) reaction to suspicious circumstances, such as a recommendation that a customer who observes suspicious persons or circumstances, while approaching or using an unmanned teller machine, should not use the unmanned teller machine at that time or, if the customer is in the middle of a transaction, should cancel the transaction, take the access device, leave the area, and come back at another time, or use an unmanned teller machine at another location;

(F) safekeeping and secure disposition of unmanned teller machine receipts;

(G) the inadvisability of surrendering information about the customer's access device over the telephone or over the Internet, unless to a trusted merchant in a call or transaction initiated by the customer;

(H) protection against unmanned teller machine fraud, such as a recommendation that the customer promptly review the customer's monthly statement and compare unmanned teller machine receipts against the statement;

(I) protection against Internet fraud, such as a recommendation that the customer, if purchasing online with the access device, should end transactions by logging out of websites instead of just closing the web browser; and

(J) other recommendations that the issuer reasonably believes are appropriate to facilitate the security of its unmanned teller machine customers.

(f) Video surveillance equipment. Video surveillance equipment is not required to be installed at all unmanned teller machines. The owner or operator must determine whether video surveillance or unconnected video surveillance equipment should be installed at a particular unmanned teller machine site, based on the safety evaluation required under the Finance Code, §59.308. If an owner or operator determines that video surveillance equipment should be installed, the owner or operator must provide for selecting, testing, operating, and maintaining appropriate equipment.

(g) Unmanned teller machines located in a bank vestibule. The provisions of the Finance Code, Chapter 59, Subchapter D, and this section are applicable to an unmanned teller machine located in a bank vestibule if there is 24 hour access to the vestibule from outside the building.

(h) Certification of Compliance. The security officer of each depository shall certify compliance with the Finance Code, Chapter 59, Subchapter D, and this section on a basis no less frequently than annually.

Source: The provisions of this §3.92 adopted to be effective January 5, 1996, 20 TexReg 10997; amended to be effective November 22, 1996, 21 TexReg 11099; amended to be effective November 13, 1997, 22 TexReg 10949; amended to be effective March 9, 2006, 31 TexReg 1643; amended to be effective March 12, 2015, 40 TexReg 1062; amended to be effective July 5, 2018, 43 TexReg 4451.

§3.93. Deposit Production Offices.

(a)  Engaging in deposit production activities. A Texas state bank may, to the extent authorized by its board of directors, engage in deposit production activities at a site other than the home office or a branch of the bank, including establishing a deposit production office (DPO) of the bank. A DPO may only solicit deposits, provide information about deposit products, and assist persons in completing application forms and related documents to open a deposit account. A DPO is not a branch within the meaning of Finance Code, §31.002(a)(8), so long as it does not engage the public in the business of banking as defined by Finance Code, §31.002(a)(4), including making loans, receiving deposits, and paying withdrawals, drafts, or checks. All such deposit or withdrawal activity must be performed by the state bank customer in person at the home office or a branch, or by mail, electronic transfer, or similar transfer method with the home office or a branch.

(b)  Notification to the banking commissioner. Pursuant to Finance Code, §32.204(b), a Texas state bank shall notify the banking commissioner in writing before the 31st day preceding the date of establishment of a DPO, except the banking commissioner in the exercise of discretion may waive or shorten the period. The written notification must include the physical address of the DPO, a list of the specific activities to be performed at the planned DPO, and other information which the banking commissioner may reasonably request.

(c)  Relocation or closure of a DPO. A Texas state bank which seeks to relocate or close an established DPO shall notify the banking commissioner in writing before the fifth day preceding the date of the planned relocation or closure of the DPO. The written notification must include the physical address of the relocated or closed DPO, the anticipated date for the closure or relocation of the DPO, and other information which the banking commissioner may reasonably request.

(d)  Transactions with management and affiliates. A state bank establishing a DPO involving the purchase or lease of personal or real property from an officer, director, manager, managing participant, or principal shareholder or participant of the bank or an affiliate of the bank, must comply with the provisions of the Finance Code, §33.109, and §3.22 of this title (relating to Sale or Lease Agreements with an Officer, Director, or Principal Shareholder of the Bank or of an Affiliate of the Bank).

(e)  Out-of-state banks. A bank not domiciled or primarily located in this state must comply with the provisions of the Finance Code, Chapter 201, Subchapter B (§§201.101 et seq.), to establish a DPO in this state.

Source: The provisions of this §3.93 adopted to be effective March 8, 2012, 37 TexReg 1496; amended to be effective November 7, 2013, 38 TexReg 7683; amended to be effective September 8, 2022, 47 TexReg 5327.

Subchapter F. Access to Information

§3.111. Confidential Information.

(a) Policy. The Texas Department of Banking (the department) is committed to the concept of open state government. As a regulator of financial institutions, however, the department recognizes the mandate of the legislature to balance the competing interests of the need of financial institutions for confidentiality regarding their financial condition and business affairs with the general public's need for information. The legislature has determined that confidential information, with limited exceptions, should not be disclosed. See Finance Code, Chapter 31, Subchapter D, Chapter 181, and §§201.007, 204.102(c), 204.117(d) and 204.205(d). Inappropriate disclosures can result in substantial harm to financial institutions and to those persons and entities (including other financial institutions) that have relationships with them. In accordance with the historical availability of records of financial institutions and the sound public policy that generally protects them, non-disclosure under this section protects the stability of such institutions by preventing disclosures that could adversely impact financial institutions. For example, the department may criticize a bank in an examination report for a financial weakness that does not currently threaten the solvency of the bank. If improperly disclosed, the criticism can lead to adverse impacts such as the possibility of bank "runs," short-term liquidity problems, and volatility in costs of funds, which in turn can exacerbate the problem and cause the failure of the bank. Bank failures lead to reduced access to credit and greater risk to depositors. Further, specific loans may be criticized in an examination report, and confidentiality of the information protects the financial privacy of customers. Finally, protecting confidential information from disclosure facilitates the free exchange of information between the financial institution and the regulator, encourages candor, and promotes regulatory responsiveness and effectiveness. Information that does not fall within the meaning of confidential information as defined in this section may be confidential under other definitions and controlled by other laws, and is not subject to this section.

(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Affiliate-A company that directly or indirectly controls, is controlled by, or is under common control with a bank or other company.

(2) Confidential information-Written and oral information obtained directly or indirectly by the department relative to the financial condition or business affairs of a financial institution, an applicant, or a present, former, or prospective shareholder, participant, officer, director, manager, affiliate, or service provider of a financial institution or applicant, whether obtained through application, examination, or otherwise, and all related files and records of the department, regardless of the form of the information when obtained or as held by the department or when the department first obtained it, and whether or not the information is part of the department's official files or records. The term does not include:

(A)  the public portions of call reports of state banks and public trust companies;

(B)  the names of proposed directors of a de novo financial institution or an entity converting to a state financial institution;

(C)  information contained in an official document required to be filed with the department in order to have legal effect (Examples of such documents include, without limitation, Certificate of Amendment, Certificate of Merger, or Certificate of Conversion);

(D)  information contained in the portion of an application submitted to the department that has been designated as public by the applicant, department or a federal agency; or

(E)  information previously disclosed to the public by the person or entity to which the information relates.

(3) Financial institution-As defined in the Finance Code, §31.002(a)(25). For purposes of this section only, the term includes a trust company incorporated under the Texas Trust Company Act, Finance Code, Chapters 181 et seq, or a predecessor statute, and a foreign bank branch, agency or representative office licensed under the Finance Code, Chapter 204 et seq.

(4) Governmental agency-Another department of this state, another state, the United States, a foreign sovereign state, or any related agency or instrumentality.

(5) Court-A court of law or equity or other adjudicatory tribunal with jurisdiction to issue a subpoena or other legal process for the production of documents, including a government agency exercising adjudicatory functions and an alternative dispute resolution mechanism, voluntary or required, under which a party may compel the production of documents.

(c) Authority to receive, hold or disclose confidential information. Authority to disclose confidential information to an individual, business, or governmental agency under this section constitutes authority to disclose it to the appropriate person officially connected to such individual, business, or governmental agency that has a need to know the information in connection with the discharge of official responsibilities and authority for the person who is officially connected to such individual, business, or governmental agency to receive such information. A person officially connected to a financial institution includes its holding company, officer, director, manager, attorney, auditor, independent auditor, employee, and a person reasonably designated as officially connected with the financial institution by resolution duly adopted by the board of directors of the financial institution. A financial institution or its service provider, or affiliate may disclose confidential information, other than as specifically mentioned, to a non-employee, such as its agent, bonding company, or a prospective acquirer, only pursuant to board resolution designating the person or entity as officially connected with the financial institution, affiliate, or service provider. The financial institution, affiliate, or service provider may not disclose confidential information to a shareholder or participant that is specifically denied to such person under the Finance Code, §31.308. Only a person to whom confidential information has been released pursuant to lawful authority may disclose that information to another, and all such further disclosures must be in accordance with the Finance Code and this section.

(d) Disclosure prohibited.

(1) Pursuant to the Finance Code, §31.301,and Stewart v. McCain, 575 S.W.2d 509 (Tex. 1978), the department possesses an absolute privilege against disclosure of confidential information held by the department. Except as provided by the Finance Code, Title 3, Subtitle A, and rules adopted under the Finance Code, the finance commission, a member of the finance commission, the banking commissioner, or an employee or agent of the department may not directly or indirectly disclose confidential information, whether voluntarily or pursuant to subpoena or other legal process. Confidential information is discoverable from the department under this section only pursuant to a protective order under subsection (f) of this section in a case in which the department is a party other than as intervenor under this section. Pursuant to the Finance Code, §31.306, and notwithstanding any other provision of this section authorizing the release of confidential information, the banking commissioner may refuse to release information or records 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 by the department or other governmental agency of potentially unlawful activities.

(2) Except as provided by the Finance Code, Title 3, Subtitle A, and this section, a financial institution, its service provider, or its affiliate may not disclose confidential information received from the department. Confidential information includes an examination report of, correspondence with, and formal and informal actions of the department taken against the financial institution, service provider, or affiliate

(e) Exceptions to non-disclosure.

(1) Disclosures by the department. Confidential information disclosed by the department pursuant to an exception to disclosure remains the confidential property of the department. The department may:

(A) disclose confidential information to the finance commission and other governmental agencies as provided by the Finance Code, §31.302 and §31.303;

(B) publish final removal, prohibition, and cease-and-desist orders and information regarding the existence of a cease-and-desist order as provided by the Finance Code, §35.012;

(C) release employment information as provided by the Finance Code, §31.307;

(D) provide a copy of the regular report of examination and an order, opinion, or other confidential information to the financial institution, its service provider, or affiliate for which it was prepared and to which it relates and correspond with that financial institution, service provider, or affiliate regarding such information;

(E) provide a copy of the regular report of examination of a service provider and an order, opinion, or other confidential information relating to the service provider to the financial institution or institutions it services;

(F) forward to a court of proper jurisdiction, subject to any existing administrative protective order, the record of an administrative hearing under appeal that contains confidential information. In the event an administrative protective order does not exist, the department or another party shall file a motion with the court for a protective order consistent with the terms of subsection (f)(4) of this section prior to filing the administrative record. Discretion of the banking commissioner or finance commission to vacate an administrative protective order entered under §9.22 of this title (relating to Protective Orders; Motions to Compel) ceases at the time the appeal is filed;

(G)  provide complete copies of documents previously submitted to the department by a financial institution to the same financial institution or the successor financial institution upon request; and

(H)  provide certificates and certified copies upon request. The cost for a formal certificate issued by the department shall be $20.00 plus $1.00 per page for certified copies of pages attached to the certificate.

(2) Further disclosure by a governmental agency, financial institution, service provider or affiliate. Except for disclosures pursuant to subsection (f) of this section, confidential information released to a financial institution, its service provider, or affiliate may be disclosed by the recipient only to a person officially connected to the recipient as provided by subsection (c) of this section and, if authorized under the terms of a confidentiality agreement between the department and another governmental agency, to that governmental agency in the discharge of its official duties. Disclosures to a person designated by board resolution as officially connected to the financial institution, service provider, or affiliate must be made pursuant to a confidentiality agreement between the financial institution, service provider, or affiliate and the recipient. Confidential information released to a governmental agency may be disclosed by the agency only to a person officially connected to the agency as provided by subsection (c) of this section or to another governmental agency to the extent authorized by this section or other law, and must be in accordance with the terms of this section and a confidentiality agreement with or letter of instructions from the department.

(3)  Disclosures of certain information.

(A) Statistical data. Confidential information consisting solely of statistical data may be disclosed, providing its release does not directly or indirectly disclose the identity of an individual or financial institution related to the data.

(B) Records of a failed financial institution. Subject to the sole discretion of the banking commissioner under this subparagraph, the department may release confidential information in or related to the records of a failed financial institution. Release may not occur under this subparagraph earlier than three years after the date such financial institution failed. Information subject to release must pertain only to the condition of the financial institution and cannot include confidential customer information, absent customer consent, or information made confidential by laws other than the Finance Code, Title 3, Subtitle A, or this section. Pursuant to Finance Code, §36.224 and §186.224, records of failed financial institutions are not government records and are not subject to public information requests under Texas Government Code, Chapter 552. 

(i) production of records is neither overly burdensome nor contrary to the public interest;

(ii) the need for the information clearly outweighs the need to maintain the confidentiality of the information; or

(iii) a compelling need exists for release of the records.

(C) Records of another governmental agency. Information the department has obtained from a federal or state governmental agency that is confidential under federal or state law or by agreement with the other agency is not considered part of the department's records. The department may not release such information unless the request for release is submitted with a certification from the appropriate state or federal authority that the information is subject to release under the laws of that jurisdiction.

(f) Discovery of confidential information from a governmental agency, financial institution, service provider, or affiliate.

(1) General rule. A governmental agency, financial institution, service provider, or affiliate that receives a subpoena or other legal process in any proceeding for the release of confidential information shall promptly notify the department of the request, provide the department with a copy of the process and of the requested documents or information, and object by written motion or other means available under applicable rules of procedure. Notice and documents should be sent to the Texas Department of Banking at 2601 North Lamar Boulevard, Austin, Texas, 78705-4294, to the attention of the General Counsel, and should be labeled "Request for Release of Confidential Information under 7 TAC §3.111." Prior to the release of confidential information, such government agency, financial institution, service provider, or affiliate also must file and obtain a ruling on a motion for a protective order and in camera inspection in accordance with this subsection. Confidential information may be released only pursuant to a protective order in a form consistent with that set out in this section and only if a court with jurisdiction has found that:

(A) the party seeking the information has a substantial need for the information;

(B) the information is directly relevant to the legal dispute in issue; and

(C) the party seeking the information is unable without undue hardship to obtain its substantial equivalent by other means.

(2) Discretionary filings by department. On receipt of notice under subsection (f)(1) of this section, the department may take action as may be appropriate to protect confidential information. The department has standing to intervene in a suit or administrative hearing for the purpose of filing a motion for protective order and in camera inspection in accordance with this subsection.

(3) Motion for protective order and in camera inspection. The movant shall ask the court to enter a protective order in accordance with this subsection regarding the release of confidential information. If necessary to resolve a dispute regarding the confidential status or direct relevance of any information sought to be released, the party seeking the protective order shall move for in camera inspection of the pertinent information. Until subject to a protective order, confidential information may not be released, and the party seeking a protective order shall request the court officer to deny discovery of such confidential information. The party seeking the protective order must comply with the court's applicable rules of procedure.

(4) Protective order. A protective order obtained pursuant to the terms of this subsection must:

(A) specifically bind each party to the litigation, including one who becomes a party to the suit after the protective order is entered, each attorney of record, and each person who becomes privy to the confidential information as a result of its disclosure under the terms of the protective order;

(B) describe in general terms the confidential information to be produced;

(C) state substantially the following in the body of the protective order:

(i) absent court order to the contrary, only the court reporter and attorneys of record in the cause may copy confidential information produced under the protective order in whole or part;

(ii) the attorneys of record are custodians responsible for all originals and copies of confidential information produced under the protective order and must insure that disclosure is limited to those persons specified in the protective order;

(iii) confidential information subject to the protective order and all information derived therefrom may be used only for the purpose of the trial, appeal, or other proceedings in the case in which it is produced;

(iv) confidential information to be filed or included in a filing in the case must be filed with the clerk separately in a sealed envelope bearing suitable identification, and is available only to the court and to those persons authorized by the order to receive confidential information, and all originals and copies made of such documents and records must be kept under seal and disclosed only in accordance with the terms of the protective order;

(v) confidential information produced under to the protective order may be disclosed only to the following persons and only after counsel has explained the terms of the order to the person who will receive the information and provided that person with a copy of the order:

(I) to a party and to an officer, employee, or representative of a party, to a party's attorneys (including other members and associates of the respective law firms and contract attorneys in connection with work on the case) and, to the extent an attorney of record in good faith determines disclosure is necessary or appropriate for the conduct of the litigation, legal assistants, office clerks and secretaries working under that attorney's supervision;

(II) to a witness or potential witness in the case;

(III) to an outside expert retained for consultation or for testimony, provided the expert agrees to be bound by the terms of the protective order and the party employing the expert agrees to be responsible for the compliance of its expert with this confidentiality obligation; and

(IV) to the court or to an appellate officer or body with jurisdiction of an appeal in the case;

(vi) at the request of the department or a party, only the court, the parties and their attorneys, and other persons the court reasonably determines should be present may attend the live testimony of a witness or discussions or oral arguments before the court that may include confidential information or relate to such confidential information. The parties shall request the court to instruct all persons present at such testimony, discussions, or arguments that release of confidential information is strictly forbidden;

(vii) a transcript, including a deposition transcript, that may include confidential information subject to non-disclosure is subject to the protective order. The party requesting the testimony of a current or former department officer, employee, or agent shall, at its expense, furnish the department a copy of the transcript of the testimony once it has been transcribed.

(viii) upon ultimate conclusion of the case by final judgment and the expiration of time to appeal, or by settlement or otherwise, counsel for each party shall return to the party that produced the confidential information all copies of every document subject to the protective order and for which the counsel is custodian; and

(ix) production of documents subject to the protective order does not waive a claim of privilege or right to withhold the documents from a person not subject to the protective order.

(D) Clauses (i), (ii), and (v)-(vii) of subparagraph (C) of this paragraph are subject to modification by the court for good cause before the conclusion of the proceeding, upon notice and opportunity to appear to the department.

Source: The provisions of this §3.111 adopted to be effective March 1, 1996, 21 TexReg 1380; amended to be effective November 13, 1997, 22 TexReg 10949; amended to be effective March 9, 2006, 31 TexReg 1643; amended to be effective August 31, 2006, 31 TexReg 6641; amended to be effective November 7, 2013, 38 TexReg 7684; amended to be effective September 8, 2022, 47 TexReg 5327.

§3.112. What Will the Department Charge for Providing Public Information?

(a) If you request the department to provide copies or allow inspection of public information in the possession of the department, you may be required to pay the charges and meet other requirements specified by the Texas Attorney General.

(b) The department may reduce or waive an applicable charge under subsection (a) of this section, in the discretion of the commissioner, if the cost of collecting the charge will exceed the amount of the charge or a public benefit will result from the reduction or waiver.

Source: The provisions of this §3.112 adopted to be effective May 21, 2002, 27 TexReg 4324; amended to be effective March 9, 2006, 31 TexReg 1643.

CHAPTER 6. BANKING DEVELOPMENT DISTRICTS (TITLE 7; PART 1)

§6.1. Purpose; Scope.

(a) This chapter implements Finance Code, Chapter 279, by providing application requirements for a municipality or county that seeks to establish a banking development district in conjunction with a financial institution.

(b) This chapter does not affect or circumvent:

(1) requirements under the Tax Increment Financing Act or the Property Redevelopment and Tax Abatement Act (Tax Code, Chapters 311 and 312, respectively), including requirements for designation of an area as a municipal or county reinvestment zone or for authorization to enter into a tax abatement agreement; or

(2) any required regulatory approval for a financial institution that seeks to establish a branch in a banking development district.

Source Note: The provisions of this §6.1 adopted to be effective November 5, 2015, 40 TexReg 7621; amended to be effective January 2, 2020, 44 TexReg 8230.

§6.2. Definitions.

The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise:

(1) "Alternative providers" means check cashers, licensed money transmitters, licensed lenders, and licensed residential mortgage lenders.

(2) "Banking services" include deposit taking, check-cashing, and origination of residential mortgages, commercial mortgages, or other secured or unsecured consumer or commercial loans.

(3) "Branch" means a full-service main office or branch office of a financial institution or credit union.

(4) "Commission" means the Finance Commission of Texas.

(5) "Credit union" means a state or federal credit union.

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

(7) "District" means a banking development district under this chapter.

(8) "Financial institution" means a state or national bank, a state or federal savings bank, or a state or federal savings and loan association.

(9) "Local government" means a municipality or county.

Source: The provisions of this §6.2 adopted to be effective November 5, 2015, 40 TexReg 7621.

§6.3. Application Requirements.

(a) Basic application. A local government, in conjunction with a financial institution, may submit an application to the commission for the designation of a proposed banking development district, as provided by §6.4 of this title (relating to Submission and Processing of Application). The application must include the following information to the extent available:

(1) identification of the local government applicant and evidence of the approval of the application by its governing body;

(2) identification of the participating financial institution by type and name, and identification of its primary state and/or federal regulator;

(3) a description of the geographic area comprising the proposed district, including a map that identifies the borders of the proposed district;

(4) a compilation and explanation of the population demographics included within the proposed district, including the number of residents and the percentage of the population that can be described as comprised of, for example, elderly (age 64 and over), disabled, non-English speaking, and identifiable racial, ethnic or other minorities;

(5) a compilation and explanation of economic indicators pertinent to the proposed district, to the extent available, including per capita annual income, median household annual income, unemployment data, percentage of the population at or below the poverty level, and percentage of the population receiving public assistance within the proposed district;

(6) a description of the type and nature of commercial businesses located in the proposed district, including the number and percentage of which constitute small business, as that term is defined by Government Code §2006.001(2);

(7) a compilation and summary of significant business developments within the past three years, including corporate restructurings, plant closings, other business closings, and recent or proposed business openings or expansions;

(8) the location, number, and proximity of sites where banking services are available in or near the proposed district, including branches of financial institutions and credit unions, and deposit-taking ATMs other than those located at branches;

(9) a compilation and description of alternate providers in the proposed district;

(10) a description of the anticipated impact that additional banking services would have on potential economic development within the proposed district.

(b) Optional information. An application for designation of a banking development district may also include:

(1) a description of other local government and community initiatives proposed to be undertaken and coordinated with establishment of the proposed district;

(2) indications of community support or opposition for the application, as evidenced by letters from entities such as local chambers of commerce, local businesses, community-based organizations, non-profit organizations, government officials, or community residents; and

(3) such other information that the applicant believes will demonstrate that the proposed district meets the standards set forth in §6.5 of this title (relating to Criteria for Approval).

Source: The provisions of this §6.3 adopted to be effective November 5, 2015, 40 TexReg 7621.

§6.4. Submission and Processing of Application.

(a) The application must be submitted to the commission in care of the Texas Department of Banking, 2601 North Lamar Boulevard, Austin, Texas 78705. No filing fee is required.

(b) On or before the 15th day after initial submission of an application, the department shall issue a written notice informing the applicant either that the application is complete and accepted for filing, or that the application is deficient and specific additional information is required. The applicant must supply any additional information requested by the department on or before the 61st day after the date of initial submission of the filing. Upon a finding of good and sufficient cause, the department shall grant an applicant additional time to complete the application. Extensions will be communicated to the applicant before the expiration of the filing period.

(c) After the issuance of written notice informing the applicant that the application is complete and accepted for filing, the department shall evaluate the application to the extent necessary to make a written recommendation to the commission under the criteria set forth in §6.5 of this title. The department shall submit the completed application and the department's recommendation to the commission for decision at the next regularly scheduled meeting of the commission, which must be on or before the 120th day after the date the completed application is accepted for filing.

(d) If the finance commission approves the application, the department shall notify the interested parties as required by Finance Code, §279.055(b).

Source: The provisions of this §6.4 adopted to be effective November 5, 2015, 40 TexReg 7621.

§6.5. Criteria for Approval.

In determining whether to approve an application for the designation of a banking development district, the commission shall take into consideration the following criteria:

(1) the location, number, and proximity of sites where banking services are available in the proposed district;

(2) consumer needs for banking services in the proposed district;

(3) the economic viability and local credit needs of the community in the proposed district;

(4) the existing commercial development in the proposed district;

(5) the impact additional banking services would have on potential economic development in the proposed district;

(6) the physical size and cohesiveness of the proposed district; and

(7) the history of the availability of banking services in the proposed district.

Source: The provisions of this §6.5 adopted to be effective November 5, 2015, 40 TexReg 7621.

§6.6. Monitoring.

(a) A local government that receives approval for a district under this chapter shall notify the department in writing on or before the 21st day after the date:

(1) the financial institution opens a branch in the district and the address of the branch; and

(2) the financial institution closes a branch in the district.

(b) On behalf of the commission, the department may request periodic status reports from the local government in order to ensure that the needs of the community located in the district are being met in an appropriate manner.

Source: The provisions of this §6.6 adopted to be effective November 5, 2015, 40 TexReg 7621.

CHAPTER 12. LOANS AND INVESTMENTS (TITLE 7; PART 2)

Subchapter A. Lending Limits

§12.1. Purpose and Scope.

(a) Purpose. The purpose of this subchapter is to administer and carry out the objectives of the Finance Code, Title 3, Subtitle A, particularly the Finance Code, §34.201, to protect the safety and soundness of state-chartered banks by preventing excessive loans to one person or a relatively small group of persons who are financially interdependent, and to promote diversification of loans to reduce portfolio and credit risk. Notwithstanding the provisions of the Finance Code, §34.201, and this subchapter, loans and extensions of credit by state banks and their operating subsidiaries remain subject to the exercise of prudent lending standards and safe and sound banking practices.

(b) Scope.

(1) This subchapter applies to all loans and extensions of credit made by a state bank and its operating subsidiaries. This subchapter does not apply to loans made by an insured state bank and its domestic operating subsidiaries to the bank´s "affiliates," as that term is defined in 12 U.S.C. §371c(b)(1), pursuant to the Finance Code, §34.201(a)(13), or to loans made by a state bank to the bank´s operating subsidiaries, pursuant to the Finance Code, §34.201(a)(14). Except as otherwise provided, this subchapter does not apply to other loans specifically exempted from the lending limit pursuant to the Finance Code, §34.201.

(2) Loans and extensions of credit to affiliates, executive officers, directors, and principal shareholders of state banks, and their related interests, are subject to the limits prescribed by 12 U.S.C. §§371c, 371c-1, 375a, and 375b, Regulation O (12 C.F.R. §215.1 et seq.), and 12 C.F.R. §337.3, in addition to the lending limits established by the Finance Code, §34.201, and this subchapter, where applicable.

(3) The lending limits in this subchapter are separate and apart from the investment limits set forth in the Finance Code, §34.101, and regulations adopted to govern investment limits. A state bank may make loans or extensions of credit to one borrower up to the full amount permitted by this subchapter and also purchase and hold eligible investment securities issued by the same obligor up to the full amount permitted under the Finance Code, §34.101.

Source: The provisions of this §12.1 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective September 6, 2007, 32 Tex Reg 5655.

§12.2. Definitions.

(a) Definitions in the Finance Code, Title 3, Subtitles A and G, are incorporated herein by reference. As used in this subchapter and in Finance Code, Chapter 34, concerning investments and loans, the following words and terms shall have the following meanings, unless the context clearly indicates otherwise.

(1)  Borrower--A person who is named as a borrower, obligor, or debtor in a loan or extension of credit; a person to whom a state bank has credit exposure arising from a derivative transaction or a securities financing transaction, entered by the bank; or any other person, including but not limited to a drawer, endorser, or guarantor who is considered to be a borrower under the direct benefit, source of repayment, or common enterprise tests set forth in §12.9 of this title (relating to Aggregation and Attribution).

(2)  Call report--The federal Consolidated Report of Condition and Income required by and filed under 12 U.S.C. §1817 (or under 12 U.S.C. §324 in the case of a bank that is a member of the Federal Reserve System), or a report of financial condition and results of operations of a state bank required by the banking commissioner under Finance Code, §31.108.

(3)  Control--Control is presumed to exist when a person directly or indirectly, or acting through or together with one or more persons:

(A)  owns, controls, or has the power to vote 25 percent or more of any class of voting securities of another person;

(B)  controls, in any manner, the election of a majority of the directors, trustees, or other persons exercising similar functions of another person; or

(C)  has the power to exercise a controlling influence over the management or policies of another person.

(4)  Credit derivative--As defined in 12 C.F.R. §324.2 (or 12 C.F.R. §217.2 in the case of a bank that is a member of the Federal Reserve System).

(5)  Derivative transaction--Includes any transaction that is a contract, agreement, swap, warrant, note, or option that is based, in whole or in part, on the value of, any interest in, or any quantitative measure or the occurrence of any event relating to, one or more commodities, securities, currencies, interest or other rates, indices, or other assets.

(6)  Effective margining arrangement--A master legal agreement governing derivative transactions between a bank and a counterparty that requires the counterparty to post, on a daily basis, variation margin to fully collateralize that amount of the bank's net credit exposure to the counterparty that exceeds $25 million created by the derivative transactions covered by the agreement.

(7)  Eligible credit derivative--A single-name credit derivative or a standard, non-tranched index credit derivative provided that:

(A)  the derivative contract meets the requirements of an eligible guarantee, as defined in 12 C.F.R. §324.2 (or 12 C.F.R. §217.2 in the case of a bank that is a member of the Federal Reserve System), and has been confirmed by the protection purchaser and the protection provider;

(B)  any assignment of the derivative contract has been confirmed by all relevant parties;

(C)  if the credit derivative is a credit default swap, the derivative contract includes the following credit events:

(i)  failure to pay any amount due under the terms of the reference exposure, subject to any applicable minimal payment threshold that is consistent with standard market practice and with a grace period that is closely in line with the grace period of the reference exposure; and

(ii)  bankruptcy, insolvency, restructuring (for obligors not subject to bankruptcy or insolvency), or inability of the obligor on the reference exposure to pay its debts, or its failure or admission in writing of its inability generally to pay its debts as they become due, and similar events;

(D)  the terms and conditions dictating the manner in which the derivative contract is to be settled are incorporated into the contract;

(E)  if the derivative contract allows for cash settlement, the contract incorporates a robust valuation process to estimate loss with respect to the derivative reliably and specifies a reasonable period for obtaining post-credit event valuations of the reference exposure;

(F)  if the derivative contract requires the protection purchaser to transfer an exposure to the protection provider at settlement, the terms of at least one of the exposures that is permitted to be transferred under the contract provides that any required consent to transfer may not be unreasonably withheld; and

(G)  if the credit derivative is a credit default swap, the derivative contract clearly identifies the parties responsible for determining whether a credit event has occurred, specifies that this determination is not the sole responsibility of the protection provider, and gives the protection purchaser the right to notify the protection provider of the occurrence of a credit event.

(8)  Eligible protection provider--An entity that is:

(A)  a sovereign entity (a central government, including the U.S. government; an agency; department; ministry; or central bank);

(B)  the Bank for International Settlements, the International Monetary Fund, the European Central Bank, the European Commission, or a multilateral development bank;

(C)  a Federal Home Loan Bank;

(D)  the Federal Agricultural Mortgage Corporation;

(E)  a depository institution, as defined in section 3 of the Federal Deposit Insurance Act, 12 U.S.C. §1813(c);

(F)  a bank holding company, as defined in section 2 of the Bank Holding Company Act, as amended, 12 U.S.C. §1841;

(G)  a savings and loan holding company, as defined in section 10 of the Home Owners' Loan Act, 12 U.S.C. §1467a;

(H)  a securities broker or dealer registered with the SEC under the Securities Exchange Act of 1934, 15 U.S.C. §§78o et seq.;

(I)  an insurance company that is subject to the supervision of a State insurance regulator;

(J)  a foreign banking organization;

(K)  a non-U.S.-based securities firm or a non-U.S.-based insurance company that is subject to consolidated supervision and regulation comparable to that imposed on U.S. depository institutions, securities broker-dealers, or insurance companies; or

(L)  a qualifying central counterparty.

(9)  Qualifying central counterparty--As defined in 12 C.F.R. §324.2 (or 12 C.F.R. §217.2 in the case of a bank that is a member of the Federal Reserve System).

(10)  Qualifying master netting agreement--As defined in 12 C.F.R. §324.2 (or 12 C.F.R. §217.2 in the case of a bank that is a member of the Federal Reserve System).

(11)  Sale of federal funds--A transaction between depository institutions involving the transfer of immediately available funds resulting from credits to deposit balances at Federal Reserve Banks, or from credits to new or existing deposit balances due from a correspondent depository institution.

(12)  Securities financing transaction--A repurchase agreement, reverse repurchase agreement, securities lending transaction, or securities borrowing transaction.

(13)  Tier 1 capital--A state bank's unimpaired capital and surplus. A state bank's Tier 1 capital is calculated under 12 C.F.R. part 324 (or 12 C.F.R. part 217 in the case of a bank that is a member of the Federal Reserve System), is reported in the bank's most recent call report, and is periodically re-calculated as provided by §12.11 of this title (relating to Calculation of Lending Limit).

(14)  Unimpaired capital and surplus--A state bank's core capital, equal to its Tier 1 capital calculated under 12 C.F.R. part324 (or 12 C.F.R. part 217 in the case of a bank that is a member of the Federal Reserve System), and referred to as Tier 1 capital in this chapter.

Source: The provisions of this §12.2 adopted to be effective January 3, 2013, 37 TexReg 10195; amended to be effective November 7, 2013, 38 TexReg 7685; amended to be effective January 4, 2024, 48 TexReg 8329.

§12.3. Loans and Extensions of Credit.

(a) Loans or extensions of credit for purposes of the Finance Code, §34.201, and this subchapter include:

(1)  an overdraft, regardless of whether such overdraft was pre-arranged, other than an intra-day overdraft for which payment or deposit is received by the bank before the time at which the bank closes its accounting records for the business day on which the funds were advanced;

(2)  a contractual obligation to advance funds to or on behalf of a person, including a bank's obligation to:

(A)  make payment, directly or indirectly, to a third party contingent upon default by a customer of the bank in performing an obligation owed to the third party or upon another stated condition;

(B)  guarantee or act as surety for the benefit of a person;

(C)  advance funds under a legally binding commitment to lend; or

(D)  advance funds under a standby letter of credit, a put, or other similar arrangement, however named or described, that represents an obligation to the beneficiary on the part of the issuing bank to repay money borrowed by or advanced to or for the account of the account party (the customer or applicant in a letter of credit transaction), make payment on account of any indebtedness undertaken by the account party, or make payment on account of a default by the account party in the performance of an obligation, but not including a bank's obligation under a commercial letter of credit or similar instrument if the issuing bank reasonably expects the beneficiary to draw on the issuer and the instrument neither guarantees payment nor provides for payment in the event of a default by a third party;

(3)  a maker or endorser's obligation arising from the discount of commercial paper;

(4)  third-party paper purchased to the extent it is subject to an agreement that the seller will repurchase the paper, including an obligation to repurchase the paper upon default or at the end of a stated period, less any applicable dealer reserves held by the bank as collateral security, unless such transaction is exempt under other provisions of the Finance Code or this subchapter;

(5)  the sale of Federal funds with a maturity of more than one business day, but not Federal funds sold with a maturity of one day or less or Federal funds sold under a continuing contract, including contracts that provide for weekly settlement if the parties have the contractual right to obtain their funds at maturity of each transaction;

(6)  loans or extensions of credit that have been charged off on the books of the bank, in whole or part, unless the loan or extension of credit is no longer legally enforceable by reason of:

(A)  discharge in bankruptcy;

(B)  expiration of the statute of limitations or judicial decision; or

(C)  another reason, provided the bank maintains sufficient records to demonstrate that the loan is unenforceable;

(7)  lease financing transactions made pursuant to the Finance Code, §34.204, unless otherwise exempt under §12.7 of this title (relating to Lease Financing);

(8)  nonrecourse or limited recourse loans or extensions of credit;

(9)  aggregate cash surrender value of life insurance policies from any one insurance company;

(10)  any credit exposure to a person arising from a derivative transaction or a securities financing transaction between a state bank and the person, as determined pursuant to §12.12 of this title (relating to Credit Exposure Arising from Derivative and Securities Financing Transactions); and

(11)  another category of transactions that is the equivalent of a loan or extension of credit as determined by the banking commissioner in the exercise of discretion.

(b)  Loans or extensions of credit for purposes of the Finance Code, §34.201, and this subchapter do not include:

(1)  funds advanced to or for the benefit of a borrower by a bank for taxes or insurance associated with collateral security for a loan or extension of credit, as well as funds advanced for utilities, security, and maintenance expenses associated with real property securing a loan or extension of credit, but only if necessary to preserve the value of the real property or other collateral security and consistent with safe and sound banking practices, provided the bank maintains sufficient records to demonstrate the necessity of the advance, and such advances are included in loans and extensions of credit thereafter until repaid for the purpose of determining whether additional loans or extensions of credit to the same borrower may be made within applicable lending limits;

(2)  accrued and discounted interest on an existing loan or extension of credit, including interest that has been capitalized from prior notes and interest that has been advanced under terms and conditions of a loan agreement;

(3)  that portion of a loan or extension of credit sold as a participation by a bank on a nonrecourse basis, provided the participation results in a pro rata sharing of credit risk proportionate to respective interests of the originating and participating lenders, except that:

(A)  notwithstanding any requirement of Financial Accounting Standard Board Accounting Standard Codification Topic 860, Transfers and Servicing, for lending limit purposes, if the participation agreement provides that repayment must be applied first to the portions sold, a pro rata sharing will be considered to exist only if, in the event of default or comparable event provided in the agreement, the participants share in all subsequent repayments and collections in proportion to their actual percentage participation at the time of the occurrence of the event;

(B)  if the originating bank funds the entire loan, the participants must be contractually obligated to remit their portion to the bank before the close of business (the time at which the bank closes its accounting records for the business day) on the next business day of the originating bank or its portion funded by the originating bank will be considered a loan by the originating bank to the borrower;

(C)  in the case of a participation sold in an existing loan, the amount of the participation may not be subtracted from the outstanding loans and extensions of credit of the originating bank until the proceeds of sale are in the possession of the originating bank; and

(D)  a loan participation agreement that provides for weekly settlement of amounts due to and from the participants meets the requirements of this paragraph if the outstanding balance to the borrower from the originating bank does not at any time exceed the bank's legal lending limit;

(4)  an advance against uncollected funds in the normal course of collection pursuant to the bank's availability schedule issued in compliance with Regulation CC (12 C.F.R. §229.1 et seq.), including the amount of an item that must be credited to the customer under the bank's availability schedule but remains uncollected and unreturned because of a delay or defect in the collection system;

(5)  the sale of Federal funds with a maturity of one day or less, or Federal funds sold under a continuing contract, including contracts that provide for weekly settlement if the parties have the contractual right to obtain their funds at maturity of each transaction;

(6)  intra-day credit exposures arising from a derivative transaction or a securities financing transaction;

(7)  a renewal or restructuring of a nonconforming loan as a new loan or extension of credit, subject to compliance with §12.10(b) of this title (relating to Nonconforming Loans); and

(8)  that portion of one or more loans or extensions of credit, not to exceed 15% of the bank's Tier 1 capital, with respect to which the bank has purchased protection in the form of a single-name credit derivative from an eligible protection provider if the reference obligor is the same legal entity as the borrower in the loan or extension of credit and the maturity of the protection purchased equals or exceeds the maturity of the loan or extension of credit.

Source: The provisions of this §12.3 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective January 2, 2003, 27 TexReg 12185; amended to be effective September 6, 2007, 32 TexReg 5655; amended to be effective January 3, 2013, 37 TexReg 10195; amended to be effective November 7, 2013, 38 TexReg 7685; amended to be effective January 4, 2024, 48 TexReg 8329.

§12.4. Loan Commitments.

(a) A commitment to lend, when combined with all other loans or extensions of credit to a borrower, must be within the bank´s legal lending limit at the time the commitment becomes binding, and advances may be made under a binding commitment to lend even if the advances would exceed the bank´s lending limit on the date of funding. In determining whether a commitment to lend is within a bank´s lending limit when made, the bank may deduct from the amount of the commitment the amount of each legally binding loan participation agreement executed before or concurrently with the bank´s commitment that would be excluded from a loan or extension of credit under §12.3(b)(3) of this title (relating to Loans and Extensions of Credit).

(b) Pursuant to the Finance Code, §34.201(b)(2), a state bank may renew a commitment to lend and complete funding under that commitment to one borrower in circumstances where the renewed commitment would exceed the bank´s current, general lending limit if:

(1) the completion of funding is consistent with safe and sound banking practices and is made to protect the position of the bank;

(2) the completion of funding will enable the borrower to complete the project for which the original, expiring commitment to lend was made; and

(3) the amount of the additional funding does not exceed the unfunded portion of the bank´s original, expiring commitment to lend.

Source: The provisions of this §12.4 adopted to be effective March 1, 1996, 21 TexReg 1383.

§12.5. Percentage Lending Limits.

(a) General lending limit. Generally, a bank´s total outstanding loans and extensions of credit to one borrower, as provided in the Finance Code §34.201, may not exceed 25% of the bank´s Tier 1 capital. However, certain loans or extensions of credit are subject to special lending limits as set forth in this section. These special lending limits are cumulative of one another and of the general lending limit under this subsection except as otherwise provided.

(b) Loans secured by title to readily marketable goods.

(1) Pursuant to the Finance Code, §34.201(a)(3), loans to one borrower secured by a bill of lading, bonded warehouse receipt, or similar document transferring or securing title to readily marketable goods may not exceed 50% of the bank´s Tier 1 capital, in addition to the amount for that borrower allowed under the bank´s general lending limit for loans and extensions of credit other than as provided by this subsection, provided the bank´s interest in the collateral is adequately insured against loss if it is customary to do so. The market value of the goods securing the loan must at all times equal at least 115% of the amount of the outstanding loan that exceeds the general lending limit. The duration of the loan or extension of credit may not exceed six months if secured by goods that are refrigerated or frozen, or ten months if secured by nonperishable goods.

(2) The holder of the bonded warehouse receipts, order bills of lading, documents of title (as defined under the Business and Commerce Code), or other similar documents must have control and be able to obtain immediate possession of the goods so that the bank is able to sell the underlying goods and promptly transfer title to the buyer if default were to occur on a loan secured by such documents. The requirement under applicable law for a brief notice period or other similar procedural condition prior to disposal of the goods will not affect the eligibility of the instruments for this special lending limit.

(3) For purposes of this subsection, readily marketable goods are articles of commerce or industry in the form of fungible units that are easy to sell in a market with sufficiently frequent price quotations, and includes basic metals, such as tin, copper, or lead, consumer goods, and packaged processed foods, including refrigerated or frozen foods. The exact price must be easy to determine and the article itself must be easy to sell at any time at a price that would not be considerably less than the amount at which it is valued as collateral. Whether an article qualifies as readily marketable goods is determined on the basis of the conditions existing at the time the loan or extension of credit secured by the article is made. Whether goods are nonperishable must be determined on a case-by-case basis because of the differences in types of goods and differences in the shipping, handling, and storing of goods.

(c) Loans secured by liens on stored agricultural products.

(1) Pursuant to the Finance Code, §34.201(a)(4), loans to one borrower secured by liens on agricultural products in secure and properly documented storage in bonded warehouses or elevators may not exceed 50% of the bank´s Tier 1 capital, in addition to the amount for that borrower allowed under the bank´s general lending limit for loans and extensions of credit other than as provided by this subsection, provided the bank´s interest in the collateral is adequately insured against loss. The market value of the agricultural products securing the loan must at all times equal at least 125% of the amount of the outstanding loan. The duration of the loan or extension of credit arising from a single transaction or the same agricultural products may not exceed six months if secured by agricultural products that are refrigerated or frozen, or exceed ten months if secured by nonperishable agricultural products.

(2) The bank must have control and be able to obtain immediate possession of the agricultural products so that the bank is able to sell the underlying products and promptly transfer title to the buyer if default were to occur on a loan secured by such products. The requirement under applicable law for a brief notice period or other similar procedural condition prior to disposal of the products will not affect the eligibility of the products for this special lending limit.

(3) Field warehouse receipts are an acceptable form of collateral when issued by a duly bonded and licensed grain elevator or warehouse having exclusive possession and control of the agricultural products even though the grain elevator or warehouse is maintained on the premises of the owner of the products. Warehouse receipts issued by the borrower-owner that is a grain elevator or warehouse company, duly bonded and licensed and regularly inspected by state or federal authorities, may be considered eligible collateral under this provision only when the receipts are registered with an independent registrar whose consent is required before the products may be withdrawn from the warehouse.

(4) Agricultural products are any product of agriculture, excluding livestock but not the products of livestock, and includes wheat and other grains, cotton, wool, flowers, eggs, and milk. Whether agricultural products are nonperishable must be determined on a case-by-case basis because of the differences in types of agricultural products and differences in the shipping, handling, and storing of agricultural products.

(d) Loans secured by readily marketable collateral.

(1) Pursuant to the Finance Code, §34.201(a)(12), loans or extensions of credit to one borrower may exceed the bank´s general lending limit by an additional 15% of the bank´s Tier 1 capital if the amount that exceeds the bank´s general lending limit is fully secured by readily marketable collateral. The bank must properly perfect its security interest in the collateral to qualify for this added special lending limit and the collateral at all times must have a market value of at least 100% of the amount of the loan or extension of credit that exceeds the bank´s general lending limit.

(2) For purposes of this subsection, readily marketable collateral must be financial instruments or bullion that can be promptly sold under ordinary market conditions at a fair market value determined by reliable and continuously available price quotations, based upon actual transactions on an auction or similarly available daily bid and ask price market. Financial instruments are stocks, bonds, notes, and debentures traded on a national securities exchange, over-the-counter margin stocks as defined in Regulation U (12 C.F.R. §§221.1 et seq.), commercial paper, negotiable certificates of deposit, bankers´ acceptances, and shares in a money market mutual fund of the type that issues shares in which banks may perfect a security interest, but not including individual mortgages. Financial instruments may be denominated in foreign currencies that are freely convertible into United States dollars.

(e) Loans secured by documents covering livestock.

(1) Pursuant to the Finance Code, §34.201(b)(2), loans or extensions of credit to one borrower secured by shipping documents or instruments that transfer or secure title to or grant a first lien security interest in livestock may not exceed 15% of the bank´s Tier 1 capital, in addition to the amount allowed under the bank´s general lending limit. The market value of the livestock securing the loan must at all times equal at least 115% of the amount of the outstanding loan that exceeds the general lending limit.

(2) The bank must maintain in its files an inspection and valuation for the livestock pledged that is reasonably current, taking into account the nature and frequency of turnover of the livestock to which the documents relate, but in no event more than 12 months old.

(3) For purposes of this subsection, livestock includes dairy and beef cattle, hogs, sheep, goats, poultry, and fish, whether or not held for resale.

(f) Loans secured by dairy cattle paper. Pursuant to the Finance Code, §34.201(b)(2), loans and extensions of credit to one borrower arising from the discount by dealers in dairy cattle of paper given in payment for the cattle may not exceed 15% of the bank´s Tier 1capital, in addition to the amount allowed under the bank´s general lending limit. To qualify, the paper must carry the full recourse endorsement or unconditional guarantee of the seller and must be secured by the cattle sold, pursuant to liens that allow the bank to maintain a perfected security interest in the cattle under applicable law.

Source: The provisions of this §12.5 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective September 6, 2007, 32 TexReg 5655.

§12.6. Loans Not Subject to Lending Limits.

(a) Loans arising from the discount of commercial or business paper.

(1)  Pursuant to the Finance Code, §34.201(a)(1), loans or extensions of credit arising from the discount of negotiable commercial or business paper that evidences an obligation to the person negotiating the paper are not subject to the lending limits of the Finance Code, §34.201, or this subchapter, provided that:

(A)  the paper is given in payment of the purchase price of commodities purchased for resale, fabrication of a product, or another business purpose that may reasonably be expected to provide funds for payment of the paper; and

(B)  the paper bears the full recourse endorsement of the owner of the paper, except that paper discounted in connection with export transactions may be transferred without recourse or with limited recourse if supported by an assignment of appropriate insurance, acceptable to the banking commissioner, covering the political, credit, and transfer risks applicable to the paper, such as insurance provided by the Export-Import Bank.

(2)  A default in the payment of principal or interest on commercial or business paper when due does not disqualify the exception under this subsection or result in a loan or extension of credit to the maker or endorser of the paper that is subject to lending limits, provided that the amount of such defaulted paper must be included in loans and extensions of credit thereafter until the default is remedied for the purpose of determining whether additional loans or extensions of credit to the same borrower may be made within applicable lending limits.

(b)  Bankers' acceptances. Pursuant to the Finance Code, §34.201(a)(2), acceptance of drafts eligible for rediscount under 12 U.S.C. §372 and §373, or a bank's purchase of acceptances created by other banks that are eligible for rediscount under those sections, is not subject to the limits of the Finance Code, §34.201, or this subchapter. Bankers' acceptances within this exception do not include:

(1)  acceptance of drafts ineligible for rediscount, thereby resulting in a loan from the bank to the customer for whom the acceptance was made, in the amount of the draft;

(2)  purchase of ineligible acceptances created by other banks, thereby resulting in a loan from the purchasing bank to the accepting bank, in the amount of the purchase price; or

(3)  a bank's purchase of its own acceptances, thereby resulting in a loan to the bank's customer for whom the acceptance was made, in the amount of the purchase price.

(c)  Obligations of state or local government. Pursuant to the Finance Code, §34.201(a)(8), a loan or extension of credit to this state or an agency or political subdivision of this state, including a county or municipality or an agency or political subdivision of a county or municipality, is not subject to the limitations of the Finance Code, §34.201, or this subchapter to the extent the loan or extension of credit constitutes a legally created general obligation of the borrower, if the lending bank has obtained an opinion of counsel or the opinion of the attorney general that the loan or extension of credit is a valid and enforceable general obligation of the borrower.

(d)  Loans secured by U.S. obligations. Pursuant to the Finance Code, §34.201, a loan or extension of credit to a borrower is not subject to the limitations of the Finance Code, §34.201, or this subchapter if the bank perfects a security interest in the collateral under applicable law and the bank is fully secured by the current market value of:

(1)  bonds, notes, certificates of indebtedness, or Treasury bills of the United States or by similar obligations fully and unconditionally guaranteed as to principal and interest by the United States; or

(2)  loans to the extent unconditionally guaranteed as to repayment of principal by the full faith and credit of the United States, as further described by subsection (f) of this section.

(e)  Loans to a federal agency. Pursuant to the Finance Code, §34.201(b)(2), a loan or extension of credit to an agency or instrumentality of the United States including a department, agency, bureau, board, commission, or establishment of the United States, or any corporation wholly owned directly or indirectly by the United States, is not subject to the limitations of the Finance Code, §34.201, or this subchapter.

(f)  Government guaranteed loans. Pursuant to Finance Code, §34.201(a)(8), a loan or extension of credit to a borrower is not subject to the limitations of the Finance Code, §34.201, or this subchapter to the extent secured by unconditional takeout commitments, insurance, or guarantees of a governmental entity described in subsection (c) or (e) of this section, provided the commitment or guarantee is payable only in cash or its equivalent. If the purchasing, insuring, or guaranteeing entity is described in subsection (c) of this section, the lending bank must obtain an opinion of counsel that the unconditional takeout commitment, insurance, or guarantee is a valid and enforceable general obligation of the purchasing, insuring, or guaranteeing entity. A takeout commitment, insurance, or guarantee is considered unconditional if the protection afforded the bank is not substantially diminished or impaired if loss should result from factors beyond the bank's control. Protection against loss is not materially diminished or impaired by procedural requirements such as an agreement to pay on the obligation only in the event of default, including default over a specific period of time, a requirement that notification of default be given within a specific period after its occurrence, or a requirement of good faith on the part of the bank.

(g)  Loans secured by segregated deposit accounts. Pursuant to the Finance Code, §34.201(a)(10), loans or extensions of credit are not subject to the limitations of the Finance Code, §34.201, and this subchapter to the extent secured by a segregated deposit account in the lending bank, provided that:

(1)  the lending bank has perfected its security interest in the deposit under applicable law;

(2)  if the deposit is eligible for withdrawal before the secured loan matures, the bank establishes internal procedures to prevent release of the security without the lending bank's prior consent; and

(3)  if the deposit is denominated and payable in a currency other than that of the loan or extension of credit that it secures, the deposit currency is freely convertible to U.S. dollars, except that only that portion of the loan or extension of credit that is fully secured by the U.S. dollar value of the deposit qualifies for exception and only if the lending bank establishes procedures to periodically revalue foreign currency deposits to ensure that the loan or extension of credit remains fully secured at all times.

(h)  Discount of installment consumer paper.

(1)  Loans and extensions of credit to one borrower arising from the discount of negotiable or nonnegotiable installment consumer paper that carries a full recourse endorsement or unconditional guarantee of payment by the person transferring the paper to the bank is considered a loan or extension of credit to the transferor, as well as the maker, and subject to the general lending limit, except that the loan or extension of credit will not be considered made to the transferor to the extent the bank has met the requirements of the Finance Code, §34.201(a)(11), and this subsection. If the transferor of the paper offers only partial recourse to the bank, the exception provided by the Finance Code, §34.201(a)(11), and this subsection is available only to the extent of the total amount of paper the transferor may be obligated to repurchase or has guaranteed. An unconditional guarantee may be in the form of a repurchase agreement, separate guarantee agreement, or other agreement having the same effect. A condition reasonably within the power or control of the bank to perform will not render conditional an otherwise unconditional guarantee.

(2)  In order to claim the installment consumer paper exception under the Finance Code, §34.201(a)(11), and this subsection, the bank must demonstrate its reliance on the maker of the paper by maintaining records supporting the bank's independent credit analysis of the maker's ability to repay the loan or extension of credit, maintained by the bank or a third party that is contractually obligated to make those records available for examination purposes, and a written certification by an officer of the bank, specifically designated by the board of the bank for this purpose, that the bank is relying primarily on the maker for repayment of the loan or extension of credit and not on a full recourse endorsement or unconditional guarantee by the transferor. If installment consumer paper is purchased in substantial quantities, the required records, evaluation, and certification must be in a form appropriate for the class and quantity of paper involved. The bank may use sampling techniques, or other appropriate methods, to independently verify the reliability of the credit information supplied by the seller.

(3)  As used in this subsection, a consumer is the end user of a product, commodity, good, or service, whether leased or purchased, but not a person who purchases products or commodities for the purpose of resale or fabrication into goods for sale. Consumer paper includes paper relating to the lease or purchase of automobiles, mobile homes, residences, office equipment, household items, tuition fees, insurance premiums, and other consumer items. Consumer paper also includes paper relating to the lease or purchase of equipment for use in manufacturing, farming, construction, or excavation, if the bank is neither the lessor nor owner of the property.

(4)  A bank may purchase and temporarily hold mortgages for sale to investors in the secondary market, and consider the purchases as loans to individual mortgagors rather than a mortgage warehouse facility, by purchasing without recourse to the transferor or, if purchased with recourse, by complying with this subsection. Whether an actual purchase is considered to occur depends on both the nature of the relationship established between the bank and other parties to the contractual arrangements and on assessment of the economic substance of the transaction. Failure to meet any one of the criteria listed below does not necessarily result in characterization of an ostensible purchase transaction as a mortgage warehouse facility to the originator. In determining whether the economic substance of a transaction constitutes a purchase, the banking commissioner will consider whether:

(A)  provisions of the contractual arrangements governing the mortgage transfers consistently reflect a relationship of buyer and seller between the bank and the transferor, and whether the bank in fact acts as the owner of the mortgages;

(B)  the bank obtains possession or control of the bearer instruments conveying ownership, including the original note, deed of trust, assignment from the transferor, and a power of attorney from the transferor for instruments endorsed in blank, provided that possession or control may also be established through safekeeping or custodial arrangements between the bank and a third party agent or bailee;

(C)  the bank takes possession or control of underlying underwriting documents, provided that possession or control of the underwriting documents by the investor is not inconsistent with characterization of the bank as a purchaser and owner of the mortgages;

(D)  the bank receives and controls the sales proceeds when remitted from the investor;

(E)  the bank demonstrates reliance on the maker by reviewing the credit quality and documentation underlying a mortgage prior to committing to make the purchase, provided that a bank purchasing mortgages in significant quantities may use sampling techniques or other appropriate methods to independently verify the reliability of the credit information supplied by the transferor;

(F)  recourse and repurchase obligations of the transferor are subject to conditions outside the control of the transferor, such as a commitment to repurchase the mortgage if rejected by the investor for reasons other than fraud or underwriting deficiency; and

(G)  the bank earns interest on the mortgages according to the interest rate on the face of each note rather than at a rate separately negotiated with the transferor.

(i)  Credit exposures arising from transactions financing certain government securities. Pursuant to Finance Code, §34.201(b)(2), credit exposures arising from securities financing transactions in which the securities financed are securities in which a state bank may invest without limit pursuant to Finance Code, §34.101(d), are not subject to the limitations of Finance Code, §34.201, and this subchapter.

Source: The provisions of this §12.6 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective July 10, 2003, 28 TexReg 5149; amended to be effective September 6, 2007, 32 TexReg 5655; amended to be effective January 3, 2013, 37 TexReg 10195; amended to be effective January 4, 2024, 48 TexReg 8329.

§12.7. Lease Financing.

(a) Loans to industrial development authorities. Pursuant to the Finance Code, §34.201(b)(2), a loan or extension of credit to an industrial development authority or similar public entity created to construct and lease a plant facility, including a health care facility, to an industrial occupant is considered a loan to the lessee, provided that:

(1) the bank documents the basis for its reliance on the industrial occupant as the primary source of repayment before the loan is extended to the authority;

(2) the authority´s liability on the loan is limited solely to whatever interest it has in the particular facility;

(3) the authority´s interest is assigned to the bank as security for the loan or the industrial occupant issues a promissory note to the bank that provides a higher order of security than the assignment of a lease; and

(4) the industrial occupant´s lease rentals are assigned and paid directly to the bank.

(b) Loans to or leases purchased from leasing companies. Pursuant to the Finance Code, §34.201(b)(2), a loan or extension of credit to a leasing company for the purpose of purchasing equipment for lease, or a lease purchased from a leasing company, is considered a loan to the lessee, provided that:

(1) the bank documents the basis for its reliance on the lessee as the primary source of repayment before the loan is extended to, or lease is purchased from, the leasing company;

(2) the loan is made, or lease is purchased, without recourse to the leasing company;

(3) the bank receives a security interest in the equipment and, in the event of default, may proceed directly against the equipment and the lessee for any deficiency resulting from the sale of the equipment;

(4) the leasing company assigns all of its rights under the lease to the bank;

(5) the lessee´s lease payments are assigned and paid to the bank directly by the lessee; and

(6) the lease terms are subject to the same limitations that would apply to a state bank acting as a lessor under the Finance Code, §34.204.

Source: The provisions of this §12.7 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective May 10, 2012, 37 TexReg 3395.

§12.8. Other Exceptions.

(a) By application. The banking commissioner in the exercise of discretion may grant an exception to any legal lending limit in the Finance Code, §34.201, or this subchapter, based on extenuating facts and circumstances. A decision to deny a requested exception is not appealable. In deciding whether to grant an exception under this subsection, the banking commissioner will consider:

(1) the proposed transaction for which the exception is sought;

(2) how the requested exception would affect the capital adequacy and safety and soundness of the requesting bank if the exception is not granted or, if the exception is granted, if the proposed borrower should ultimately default;

(3) how the requested exception would affect the loan portfolio diversification of the requesting bank;

(4) the competency of management to handle the proposed transaction and any resulting safety and soundness issues;

(5) the marketability and value of the proposed collateral; and

(6) the extenuating facts and circumstances that warrant an exception in light of the purpose of legal lending limits as set forth in §12.1 of this title (relating to Purpose and Scope).

(b) Emergency lending limits. In the event that a bank´s Tier 1 capital declines sufficiently to seriously impair the bank´s ability to effectively operate in its marketplace or serve the needs of its customers or the community in which it is located, the banking commissioner may, upon written application, grant the bank temporary permission to fund loans or extensions of credit in excess of the bank´s legal lending limit. The banking commissioner in the exercise of discretion may limit emergency lending authority under this section to particular types or classes of loans or extensions of credit.

Source: The provisions of this §12.8 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective September 6, 2007, 32 TexReg 5655.

§12.9. Aggregation and Attribution.

(a) General rule. A loan or extension of credit to one borrower is attributed to another person, and each person will be considered a borrower, if:

(1) proceeds of the loan or extension of credit are to be used for the direct benefit of the other person, to the extent of the proceeds so used, as provided by subsection (b) of this section;

(2) a common enterprise is deemed to exist between the persons as provided by subsection (c) of this section; or

(3) the expected source of repayment for each loan or extension of credit is the same for each person as provided by subsection (d) of this section; or

(4) notwithstanding another provision of this section, the banking commissioner determines that a loan should be attributed to another person pursuant to the Finance Code, §34.201(c).

(b) Direct benefit. The proceeds of a loan or extension of credit to a borrower is considered used for the direct benefit of another person and attributed to the other person if the proceeds, or assets purchased with the proceeds, are transferred in any manner to or for the benefit of the other person, other than in a bona fide arm´s length transaction where the proceeds are used to acquire property, goods, or services.

(c) Common enterprise.

(1) A common enterprise is considered to exist and loans to separate borrowers will be aggregated in the case of:

(A) loans or extensions of credit made to affiliated borrowers if substantial financial interdependence exists between or among the borrowers; or

(B) loans made to separate persons for the purpose of acquiring more than 50% of the voting securities or voting interests of a business enterprise, in which case the acquisition loans are aggregated and attributed to the business enterprise.

(2) For purposes of paragraph (1)(A) of this subsection, borrowers are affiliated if one borrower directly or indirectly controls, is controlled by, or is under common control with another borrower. Substantial financial interdependence exists if 50% or more of one borrower´s gross receipts or gross expenditures (on an annual basis) are derived from transactions with the other borrower and is presumed to exist, subject to rebuttal, if 25% or more of one borrower´s gross receipts or gross expenditures (on an annual basis) are derived from transactions with the other borrower. Gross receipts and expenditures include gross revenues and expenses, intercompany loans, dividends, capital contributions, and similar receipts or payments.

(d) Source of repayment. The expected source of repayment for each loan or extension of credit is considered the same if the primary source of repayment is the same for each borrower. An employer will not be considered a primary source of repayment under this subsection solely because of wages and salaries paid to an employee, unless the standards of subsection (c)(1) of this section are met.

(e) Loans to a corporate group. Pursuant to the Finance Code, §34.201(c), loans or extensions of credit by a bank to a corporate group may not exceed 60% of the bank´s Tier 1 capital. This limitation applies only to loans subject to the general lending limit. For purposes of this subsection, a corporate group is comprised of a person and all of its subsidiaries, and a corporation or other entity is a subsidiary of a person if the person owns or beneficially owns directly or indirectly more than 50% of the voting securities or voting interests of the corporation or other entity. Subject to the special limit of this subsection, loans or extensions of credit to a person and its subsidiary, or to different subsidiaries of a person, are not aggregated or attributed to other members of the corporate group unless either the direct benefit, common enterprise, or source of repayment test is met.

(f) Loans to partnerships or partners.

(1) A loan or extension of credit to a partnership, joint venture, or association is considered to be a loan or extension of credit to each member of the partnership, joint venture, or association other than those partners or members that, by the terms of the partnership or membership agreement, are not held generally liable for the debts or actions of the partnership, joint venture, or association, provided those provisions are valid against third parties under applicable law, and that have not otherwise agreed to guarantee or be personally liable on the loan or extension of credit.

(2) A loan or extension of credit to a member of a partnership, joint venture, or association is generally not attributed to the partnership, joint venture, or association, or to other members of the partnership, joint venture, or association, except as otherwise required by subsections (b)-(d) of this section, provided that a loan or extension of credit made to a member of a partnership, joint venture or association for the purpose of purchasing an interest in the partnership, joint venture or association, is attributed to the partnership, joint venture or association.

(g) Guarantors and accommodation parties. The derivative obligation of a drawer, endorser, or guarantor of a loan or extension of credit, including a contingent obligation to purchase collateral that secures a loan, is not aggregated with direct loans or extensions of credit to such drawer, endorser, or guarantor if the lending bank is relying primarily on the creditworthiness of the primary obligor and none of the tests set forth in this section are satisfied. The reliance of the lending bank on the primary obligor must be evidenced by the certification of an officer of the bank that the bank is, on stated facts, relying primarily on the responsibility and financial condition of the primary obligor for payment of the loan or extension of credit and not on the guarantee, or commitment in whatever form, of the guarantor, drawer, or endorser. In the event that the loan or extension of credit to the primary obligor, considered by the bank to be of sufficient credit quality at its inception, experiences subsequent deterioration to the point that the primary obligor is no longer performing in accordance with the terms of the initial loan agreement, such event will not result in a lending limit violation on behalf of the guarantor by virtue of the primary obligor´s nonperformance. However, the total amount of the deteriorated loans guaranteed by such accommodating person must be combined with all other obligations of such guarantor in determining whether the guarantor may obtain additional loans or extensions of credit from the bank.

Source: The provisions of this §12.9 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective September 6, 2007, 32 TexReg 5655; amended to be effective May 10, 2012, 37 TexReg 3395.

§12.10. Nonconforming Loans.

(a) A loan or extension of credit, within a bank's legal lending limit when made, will not be considered a violation of the applicable lending limit but will be cited as nonconforming if the loan no longer complies with the bank's legal lending limit because:

(1)  the bank's Tier 1 capital has declined;

(2)  borrowers have merged or otherwise become affiliated in such a way as to invoke aggregation under §12.9 of this title (relating to Aggregation and Attribution);

(3)  the bank has merged with another depository institution or the bank has purchased all or substantially all of the assets of a failed depository institution from the Federal Deposit Insurance Corporation as receiver of such institution on or shortly after the date of its closing;

(4)  the lending limit or capital definitions or standards have changed after the date the loan or extension of credit was originated;

(5)  in the case of a credit exposure arising from a transaction identified in §12.12(a) of this title (relating to Credit Exposure Arising from Derivative and Securities Financing Transactions) and measured by the model method specified in §12.12(b)(1)(A) or (c)(1)(A), the current exposure method specified in §12.12(b)(1)(C), or the Basel collateral haircut method specified in §12.12(c)(1)(C), an increase in the credit exposure subject to the lending limits of Finance Code, §34.201, or this subchapter after execution of the transaction; or

(6)  collateral securing the loan or extension of credit to satisfy the requirements of a special lending limit or lending limit exception has declined in value.

(b)  A bank must exercise reasonable efforts to bring a loan or extension of credit that is nonconforming as a result of circumstances described in subsection (a)(1)-(5) of this section into conformity with the legal lending limit, consistent with safe and sound banking practices. As a last resort, a bank may renew or restructure an existing, nonconforming loan or extension of credit as a new, nonconforming loan or extension of credit without violating the Finance Code or this subchapter, unless:

(1)  additional funds are advanced by the bank to the borrower, except as permitted by §12.4(b) of this title (relating to Loan Commitments);

(2)  the original borrower is replaced by a new borrower; or

(3)  the banking commissioner determines that the renewal or restructuring of the loan or extension of credit is designed to evade the bank's lending limit.

(c)  A bank must bring a loan or extension of credit that is nonconforming as a result of the circumstance described in subsection (a)(5) of this section into conformity with the legal lending limit on or before the 31st day after the nonconformity is discovered unless judicial proceedings, regulatory action, or other extraordinary circumstances beyond the bank's control prevent the bank from taking action.

Source: The provisions of this §12.10 adopted to be effective March 1, 1996, 21 TexReg 1383; amended to be effective September 6, 2007, 32 TexReg 5655; amended to be effective May 10, 2012, 37 TexReg 3395; amended to be effective January 3, 2013, 37 TexReg 10195; amended to be effective November 7, 2013, 38 TexReg 7685.

§12.11. Calculation of Lending Limit.

(a) Calculation date. For purposes of determining compliance with Finance Code, §34.201, and this subchapter, a state bank shall determine its lending limit as of the most recent of the following dates:

(1) the last day of the preceding calendar quarter; or

(2) the date on which there is a change in the bank's capital category for purposes of 12 U.S.C. §1831o and 12 C.F.R. §324.402 (or 12 CFR §324.402 in the case of a bank that is a member of the Federal Reserve System).

(b) Effective date.

(1) A bank's lending limit calculated in accordance with subsection (a)(1) of this section is effective as of the earlier of the following dates:

(A) the date on which the bank's call report is submitted; or

(B) the date on which the bank's call report is required to be submitted under applicable federal law.

(2) A bank's lending limit calculated in accordance with subsection (a)(2) of this section is effective on the date that the limit is required to be calculated.

(c) More frequent calculations. The banking commissioner may permit a state bank to recalculate its lending limit at a point during a quarter based on a material change in a bank's capital arising from corporate activities, such as a merger or stock issuance. For safety and soundness reasons, the banking commissioner may provide written notice to a state bank directing the bank to calculate its lending limit at a more frequent interval than required by subsection (a) of this section, and the bank shall thereafter calculate its lending limit at that interval until further notice.

Source:  The provisions of this §12.11 adopted to be effective September 6, 2007, 32 TexReg 5655; amended to be effective January 4, 2024, 48 TexReg 8329.

§12.12. Credit Exposure Arising from Derivative and Securities Financing Transactions.

(a)  Scope. This section sets forth the rules for calculating the credit exposure arising from a derivative transaction or a securities financing transaction entered into by a state bank for purposes of determining the bank's lending limit pursuant to Finance Code, §34.201, and this subchapter.

(b)  Derivative transactions.

(1)  Non-credit derivatives. Subject to paragraphs (2)-(4) of this subsection, a state bank shall calculate the credit exposure to a counterparty arising from a derivative transaction by one of the following methods. Subject to paragraphs (3) and (4) of this subsection, a bank shall use the same method for calculating counterparty credit exposure arising from all of its derivative transactions.

(A)  Model method.

(i)  Credit exposure. The credit exposure of a derivative transaction under the model method is equal to the sum of the current credit exposure of the derivative transaction and the potential future credit exposure of the derivative transaction.

(ii)  Calculation of current credit exposure. A bank shall determine its current credit exposure by the mark-to-market value of the derivative contract. If the mark-to-market value is positive, then the current credit exposure equals that mark-to-market value. If the mark-to-market value is zero or negative, then the current credit exposure is zero.

(iii)  Calculation of potential future credit exposure. A bank shall calculate its potential future credit exposure by using an internal model that has been approved in writing for purposes of 12 C.F.R. §324.132(d) (or 12 CFR §217.132(d) in  the case of a bank that is a member of the Federal Reserve System), provided that the bank notifies the commissioner prior to its use for purposes of this section, or another model approved by the department based on the views of the bank's primary federal banking regulatory agency and any third party testing and evaluation reports submitted to the commissioner. Any substantive revisions to an internal model made after the bank has provided notice of its use, or after the commissioner has approved the use of an alternate model, must be approved by the commissioner before a bank may use the revised model for purposes of this section.

(iv)  Net credit exposure. A bank that calculates its credit exposure by using the model method pursuant to this subparagraph may net credit exposures of derivative transactions arising under the same qualifying master netting agreement.

(B)  Conversion factor matrix method. The credit exposure arising from a derivative transaction under the conversion factor matrix method is equal to and will remain fixed at the potential future credit exposure of the derivative transaction, which equals the product of the notional amount of the derivative transaction and a fixed multiplicative factor determined by reference to Table 1 of this section.

Figure: 7 TAC §12.12(b)(1)(B)

Table 1-Conversion Factor Matrix for Calculating Potential Future Credit Exposure. (1)

(1)  For an OTC derivative contract with multiple exchanges of principal, the conversion factor is multiplied by the number of remaining payments in the derivative contract.
(2)  For an OTC derivative contract that is structured such that on specified dates any outstanding exposure is settled and the terms are reset so that the market value of the contract is zero, the remaining maturity equals the time until the next reset date. For an interest rate derivative contract with a remaining maturity of greater than one year that meets these criteria, the minimum conversion factor is 0.005.
(3)  Transactions not explicitly covered by any other column in Table 1 are to be treated as "Other."

(C)  Current exposure method. The credit exposure arising from a derivative transaction (other than a credit derivative transaction) under the current exposure method is calculated in the manner provided by 12 C.F.R. §324.34(b)-(c) (or 12 C.F.R. §217.34(b)-(c) in the case of a bank that is a  member of the Federal  Reserve System).

(2)  Credit derivatives.

(A) Counterparty exposure.

(i)  General rule. Notwithstanding paragraph (1) of this subsection and subject to clause (ii) of this subparagraph, a state bank that uses the conversion factor matrix method or the current exposure method, or that uses the model method without entering an effective margining arrangement as defined in §12.2 of this title (relating to Definitions), shall calculate the counterparty credit exposure arising from credit derivatives entered by the bank by adding the net notional value of all protection purchased from the counterparty on each reference entity.

(ii)  Special rule for certain effective margining arrangements. A bank must add the effective margining arrangement threshold amount to the counterparty credit exposure arising from credit derivatives calculated under the model method. The effective margining arrangement threshold is the amount under an effective margining arrangement with respect to which the counterparty is not required to post variation margin to fully collateralize the amount of the bank's net credit exposure to the counterparty.

(B)  Reference entity exposure. A state bank shall calculate the credit exposure to a reference entity arising from credit derivatives entered into by the bank by adding the net notional value of all protection sold on the reference entity. A bank may reduce its exposure to a reference entity by the amount of any eligible credit derivative purchased on that reference entity from an eligible protection provider.

(3)  Special rule for central counterparties. In addition to amounts calculated under paragraphs (1) and (2) of this subsection, the measure of counterparty exposure to a central counterparty must also include the sum of the initial margin posted by the bank plus any contributions made by it to a guaranty fund at the time such contribution is made. However, this requirement does not apply to a bank that uses an internal model pursuant to paragraph (1)(A) of this subsection if such model reflects the initial margin and any contributions to a guaranty fund.

(4)  Mandatory or alternative use of method. The commissioner may in the exercise of discretion require or permit a state bank to use a specific method or methods set forth in this subsection to calculate the credit exposure arising from all derivative transactions, from any category of derivative transactions, or from a specific derivatives transaction if the commissioner in the exercise of discretion finds that such method is consistent with the safety and soundness of the bank.

(c)  Securities financing transactions.

(1)  In general. Except as provided by paragraph (2) of this subsection, a state bank shall calculate the credit exposure arising from a securities financing transaction by one of the following methods. A state bank shall use the same method for calculating credit exposure arising from all of its securities financing transactions.

(A)  Model method. A state bank may calculate the credit exposure of a securities financing transaction by using an internal model that has been approved in writing for purposes of 12 C.F.R. §324.132(b) (or 12 CFR  §217.132(b) in the case of a bank that is a member of the Federal Reserve System), provided that the bank notifies the commissioner prior to its use for purposes of this section, or another model approved by the department based on the views of the bank's primary federal banking regulatory agency and any third party testing and evaluation reports submitted to the commissioner. Any substantive revisions to an internal model made after the bank has provided notice of its use, or after the commissioner has approved the use of an alternate model, must be approved by the commissioner before a bank may use the revised model for purposes of this section.

(B)  Basic method. A state bank may calculate the credit exposure of a securities financing transaction as follows:

(i)  Repurchase agreement. The credit exposure arising from a repurchase agreement shall equal and remain fixed at the market value at execution of the transaction of the securities transferred to the other party less cash received.

(ii)  Securities lending.

(I)  Cash collateral transactions. The credit exposure arising from a securities lending transaction where the collateral is cash shall equal and remain fixed at the market value at execution of the transaction of securities transferred less cash received.

(II)  Non-cash collateral transactions. The credit exposure arising from a securities lending transaction where the collateral is other securities shall equal and remain fixed as the product of the higher of the two haircuts associated with the two securities, as determined by reference to Table 2 of this section, and the higher of the two par values of the securities. Where more than one security is provided as collateral, the applicable haircut is the higher of the haircut associated with the security lent and the notional-weighted average of the haircuts associated with the securities provided as collateral.

(iii)  Reverse repurchase agreements. The credit exposure arising from a reverse repurchase agreement shall equal and remain fixed as the product of the haircut associated with the collateral received, as determined by reference to Table 2 of this section, and the amount of cash transferred.

(iv)  Securities borrowing.

(I)  Cash collateral transactions. The credit exposure arising from a securities borrowed transaction where the collateral is cash shall equal and remain fixed as the product of the haircut on the collateral received, as determined by reference to Table 2 of this section, and the amount of cash transferred to the other party.

(II)  Non-cash collateral transactions. The credit exposure arising from a securities borrowed transaction where the collateral is other securities shall equal and remain fixed as the product of the higher of the two haircuts associated with the two securities, as determined by reference to Table 2 of this section, and the higher of the two par values of the securities. Where more than one security is provided as collateral, the applicable haircut is the higher of the haircut associated with the security borrowed and the notional-weighted average of the haircuts associated with the securities provided as collateral.

TABLE 2-COLLATERAL HAIRCUTS

SOVEREIGN ENTITIES

CORPORATE AND MUNICIPAL BONDS THAT ARE BANK-ELIGIBLE INVESTMENTS

OTHER ELIGIBLE COLLATERAL

(4) In cases where the currency denomination of the collateral differs from the currency denomination of the credit transaction, an additional 8.0% haircut will apply.
(5) OECD Country Risk Classification means the country risk classification as defined in Article 25 of the OECD's February 2011 Arrangement on Officially Supported Export Credits Arrangement.
(6) Main index means the Standard & Poor's 500 Index, the FTSE All-World Index, and any other index for which the covered company can demonstrate to the satisfaction of the Federal Reserve that the equities represented in the index have comparable liquidity, depth of market, and size of bid-ask spreads as equities in the Standard & Poor's 500 Index and FTSE All-World Index.

(C) Basel collateral haircut method. A state bank may calculate the credit exposure of a securities financing transaction in the manner provided by 12 C.F.R. §324.132(b)(2)(i) and (ii) (or 12 CFR §217.132(b)(2)(i) and (ii) in the case of a bank that is  a member of the Federal Reserve System).

(2) Mandatory or alternative use of method. The commissioner may in the exercise of discretion require or permit a state bank to use a specific method or methods set forth in this subsection to calculate the credit exposure arising from all securities financing transactions, from any category of securities financing transactions, or from a specific derivatives transaction if the commissioner finds in the exercise of discretion that such method is consistent with the safety and soundness of the bank.

Source:  The provisions of this §12.12 adopted to be effective January 3, 2013, 37 TexReg 10195; amended to be effective November 7, 2013, 38 TexReg 7685; amended to be effective January 4, 2024, 48 TexReg 8329.

Subchapter B. Loans

§12.31. Loans Secured By Affiliate-Issued Securities.

A loan subject to Finance Code, §34.102(d), must be subtracted from the capital of a lending bank if the loan proceeds are used directly, or indirectly, for the purpose of recapitalizing the lending bank, unless the loan is fully secured by irrevocable letters of credit or other liquid assets.

Source: The provisions of this §12.31 adopted to be effective May 17, 1996, 21 TexReg 3935; amended to be effective July 10, 2003, 28 TexReg 5149.

§12.32. Loan Fees and Charges.

(a) Applicability.

(1) Finance Code, §34.203, and this section apply to:

(A) closed end first lien residential real estate loans;

(B) loans other than for personal, family, or household use (i.e., commercial loans including all commercial real estate loans); and

(C) loans for personal, family, or household use that are repayable in a single installment (i.e., single pay consumer loans).

(2) Finance Code, §34.203, and this section do not apply to a consumer loan payable in two or more installments that is subject to Finance Code, Title 4, Subtitle B.

(b) Reasonable fees authorized. A bank may require a borrower to pay all reasonable expenses and fees incurred in connection with the making, closing, disbursing, extending, readjusting, or renewing of a loan subject to this section, including fees paid to third parties as well as charges and fees paid to the bank itself for the services of the bank employees. However, such charges may not include fees paid by the bank (in addition to regular salary or director´s fee) to an officer or director for services rendered within the course and scope of his or her employment with the bank. Subject to limitations of other law, possible fees and charges which may be charged and collected under this section include fees for underwriting, appraisal, document preparation, title insurance or abstract and opinion, insurance (including casualty coverage for collateral and credit products), credit reports, escrows, and filing fees, among others.

(c) Calculation of reasonable fee.

(1) Authorized loan fees must be reasonably related to the costs incurred by the bank. In establishing loan fees, a bank may establish fixed fees for underwriting activities for various categories of loans. In establishing such fixed fees, the bank may take into consideration its average costs in various activities, including but not limited to the average cost of taking an application, obtaining necessary reports and documentation, review of credit reports, analysis of the loan proposal and the prospective borrower´s ability to repay, preparation of documents, loan review, and closing activities, plus a reasonable overhead factor. In lieu of conducting its own analysis, where relevant a bank may accept as reasonable and rely on the functional cost analysis prepared by the Board of Governors of the Federal Reserve System.

(2) This section does not require a bank to charge its borrower the full, true cost of accepting and consummating a lending transaction. For example, a bank may choose to assess a lower than actual cost loan fee on smaller consumer single pay loans in the interest of making loans more affordable to low to moderate income borrowers, or may deliberately underestimate its actual costs to provide a margin of security regarding compliance with law.

(3) Fees and expenses charged and collected in accordance with the Finance Code, §34.203, and in accordance with this section are not considered interest or compensation charged by the bank for the use, forbearance, or detention of money. However, fees and expenses which do not comply with these requirements may be characterized in litigation as interest.

(d) Collection of fee. Loan fees may be collected separately or added to the amount of the promissory note and financed as part of the loan.

Source: The provisions of this §12.32 adopted to be effective May 17, 1996, 21 TexReg 3935; amended to be effective November 13, 1997, 22 TexReg 10954; amended to be effective May 6, 2004, 29 TexReg 4141. 

§12.33. Debt Cancellation Contracts and Debt Suspension Agreements. 

(a) Definitions.

(1) "Actuarial method" means the method of allocating payments made on a debt between the amount financed and the finance charge pursuant to which a payment is applied first to the accumulated finance charge and any remainder is subtracted from, or any deficiency added to, the unpaid balance of the amount financed.

(2) "Closed-end credit" means consumer credit other than open-end credit as defined in this section.

(3) "Contract" means a debt cancellation contract or a debt suspension agreement.

(4) "Customer" means an individual who obtains an extension of credit from a bank primarily for personal, family, or household purposes.

(5) "Debt cancellation contract" means a loan term or contractual arrangement modifying loan terms under which a bank agrees to cancel all or part of a customer's obligation to repay an extension of credit from that bank upon the occurrence of a specified event.  The agreement may be separate from or a part of other loan documents.

(6) "Debt suspension agreement" means a loan term or contractual arrangement modifying loan terms under which a bank agrees to suspend all or part of a customer's obligation to repay an extension of credit from that bank upon the occurrence of a specified event.  The agreement may be separate from or a part of other loan documents.  The term "debt suspension agreement" does not include loan payment deferral arrangements in which the triggering event is the borrower's unilateral election to defer repayment, or the bank's unilateral decision to allow a deferral of repayment.

(7) "Open-end credit" means consumer credit extended by a bank under a plan in which:

(A)  The bank reasonably contemplates repeated transactions;

(B)  The bank may impose a finance charge from time to time on an outstanding unpaid balance; and

(C)  The amount of credit that may be extended to the customer during the term of the plan (up to any limit set by the bank) is generally made available to the extent that any outstanding balance is repaid.

(8) "Residential mortgage loan" means a loan secured by a 1-4 family, residential real property.

(b)  Authority, purpose, and scope.

(1)  Authority. A state bank is authorized to enter into debt cancellation contracts and debt suspension agreements and charge a fee therefore under Finance Code, §32.001.

(2)  Purpose. This section sets forth the standards that apply to debt cancellation contracts and debt suspension agreements entered into by state banks.  The purpose of these standards is to ensure that state banks offer and implement such contracts and agreements consistent with safe and sound banking practices, and subject to appropriate consumer protections.

(3)  Scope.  This section applies to debt cancellation contracts and debt suspension agreements entered into by state banks in connection with an extension of credit they make.  State banks' debt cancellation contracts and debt suspension agreements are governed by this section and applicable provisions in the Finance Code, and not by state insurance laws.

(c)  Prohibited Practices.

(1)  Anti-tying.  A state bank may not extend credit nor alter the terms or conditions of an extension of credit conditioned upon the customer entering into a debt cancellation contract or debt suspension agreement with the bank.

(2)  Misrepresentations.  A state bank may not engage in any practice or use any advertisement that could mislead or otherwise cause a reasonable person to reach an erroneous belief with respect to information that must be disclosed under this section.

(3)  Prohibited Contract Terms.  A state bank may not offer debt cancellation contracts or debt suspension agreements that contain terms:

(A)  giving the bank the right unilaterally to modify the contract or agreement unless:

(i)  the modification is favorable to the customer and is made without additional charge to the customer; or

(ii)  the customer is notified of any proposed change and is provided a reasonable opportunity to cancel the contract without penalty before the change goes into effect; or

(B)  requiring a lump sum, single payment for the contract payable at the outset of the contract, where the debt subject to the contract is a residential mortgage loan.

(d)  Refunds of fees on termination or prepayment.

(1)  Refunds.  If a debt cancellation contract or debt suspension agreement is terminated (including, for example, when the customer prepays the covered loan), the bank shall refund to the customer any unearned fees paid for the contract unless the contract provides otherwise.  A state bank may offer a customer a contract that does not provide a refund only if the bank also offers that customer a bona fide option to purchase a comparable contract that provides for a refund.

(2)  Method of calculating refund.  The bank shall calculate the amount of a refund using a method at least as favorable to the customer as the actuarial method.

(e)  Payment of fees.  Except as provided in subsection (c)(3)(B) of this section, a state bank may offer a customer the option of paying the fee for a contract in a single payment, provided the bank also offers the customer a bona fide option of paying the fee for that contract in monthly or periodic payments.  If the bank offers the customer the option to finance the single payment by adding it to the amount the customer is borrowing, the bank must also disclose to the customer, whether and under what terms the customer may cancel the agreement and receive a refund.

(f)  Disclosures.

(1)  Content of short form of disclosures.  The short form of disclosures required by this section must include the information described in subparagraphs (A) through (F) of this paragraph that is appropriate to the product offered.  Short form disclosures made in a form that is substantially similar to these disclosures will satisfy the short form disclosure requirements of this subsection.

(A)  This product is optional.  "Your purchase of (product name) is optional.  Whether or not you purchase (product name) will not affect your application for credit or the terms of any existing credit agreement you have with the bank."

(B)  Lump sum payment of fee (applicable if a bank offers the option to pay the fee in a single payment, prohibited where the debt subject to the contract is a residential mortgage loan).  "You may choose to pay the fee in a single lump sum or in monthly or quarterly payments. Adding the lump sum of the fee to the amount you borrow will increase the cost of (product name)."

(C)  Lump sum payment of fee with no refund (applicable if a bank offers the option to pay the fee in a single payment for a no-refund debt cancellation contract, prohibited where the debt subject to the contract is a residential mortgage loan).  "You may choose (product name) with a refund provision or without a refund provision.  Prices of refund and no-refund products are likely to differ."

(D)  Refund of fee paid in lump sum (applicable where the customer pays the fee in a single payment and the fee is added to the amount borrowed, prohibited where the debt subject to the contract is a residential mortgage loan).  Either:

(i) "You may cancel (product name) at any time and receive a refund;"

(ii) "You may cancel (product name) within _______ days and receive a full refund;" or

(iii) "If you cancel (product name) you will not receive a refund."

(E)  Additional disclosures.  "We will give you additional information before you are required to pay for (product name)."  If applicable:  "This information will include a copy of the contract containing the terms of (product name)."

(F)  Eligibility requirements, conditions, and exclusions.  "There are eligibility requirements, conditions, and exclusions that could prevent you from receiving benefits under (product name)."  Either:

(i) "You should carefully read our additional information for a full explanation of the terms of (product name);" or

(ii) "You should carefully read the contract for a full explanation of the terms."

(2)  Content of long form of disclosures.  The long form of disclosures required by this section must include the information described in subparagraphs (A) through (I) of this paragraph that is appropriate to the product offered.  Long form disclosures made in a form that is substantially similar to these disclosures will satisfy the long form disclosure requirements of this subsection.

(A)  This product is optional.  "Your purchase of (product name) is optional.  Whether or not you purchase (product name) will not affect your application for credit or the terms of any existing credit agreement you have with the bank."

(B)  Explanation of debt suspension agreement (applicable if the contract has a debt suspension feature).  "If (product name) is activated, your duty to pay the loan principal and interest to the bank is only suspended.  You must fully repay the loan after the period of suspension has expired."  If applicable: "This includes interest accumulated during the period of suspension."

(C)  Amount of fee.

(i)  For closed-end credit:  "The total fee for (product name) is _____________."

(ii)  For open-end credit, either:

(I) "The monthly fee for (product name) is based on your account balance each month multiplied by the unit-cost, which is ______________;" or

(II) "The formula used to compute the fee is ______________."

(D)  Lump sum payment of fee (applicable if a bank offers the option to pay the fee in a single payment, prohibited where the debt subject to the contract is a residential mortgage loan).  "You may choose to pay the fee in a single lump sum or in monthly or quarterly payments. Adding the lump sum of the fee to the amount you borrow will increase the cost of (product name)."

(E)  Lump sum payment of fee with no refund (applicable if a bank offers the option to pay the fee in a single payment for a no-refund debt cancellation contract, prohibited where the debt subject to the contract is a residential mortgage loan.)  "You have the option to purchase (product name) that includes a refund of the unearned portion of the fee if you terminate the contract or prepay the loan in full prior to the scheduled termination date.  Prices of refund and no-refund products may differ."

(F)  Refund of fee paid in lump sum (applicable where customer pays the fee in a single payment and the fee is added to the amount borrowed, prohibited where the debt subject to the contract is a residential mortgage loan).  Either:

(i) "You may cancel (product name) at any time and receive a refund;"

(ii) "You may cancel (product name) within ______ days and receive a full refund;" or

(iii) "if you cancel (product name) you will not receive a refund."

(G)  Use of card or credit line restricted (applicable if the contract restricts the use of card or credit line when customer activates protection).  "If (product name) is activated, you will be unable to incur additional charges on the credit card or use the credit line."

(H)  Termination of (product name).  Either:

(i) "You have no right to cancel (product name)"; or

(ii) "You have the right to cancel (product name) in the following circumstances _____________:" and

(I) "The bank has no right to cancel (product name);" or

(II) "The bank has the right to cancel (product name) in the following circumstances ___________________."

(I)  Eligibility requirements, conditions, and exclusions.  "There are eligibility requirements, conditions, and exclusions that could prevent you from receiving benefits under (product name)."  Either:

(i) "The following is a summary of the eligibility requirements, conditions, and exclusions (summary provided by bank);" or

(ii) "You may find a complete explanation of the eligibility requirements, conditions, and exclusions in paragraphs _________ of the (product name) agreement."

(3)  Disclosure requirements; timing and method of disclosures.

(A)  Short form disclosures.  The bank shall make the short form disclosures orally at the time the bank first solicits the purchase of a contract.

(B)  Long form disclosures.  The bank shall make the long form disclosures in writing before the customer completes the purchase of the contract.  If the initial solicitation occurs in person, then the bank shall provide the long form disclosures in writing at that time.

(C)  Special rule for transactions by telephone.  If the contract is solicited by telephone, the bank shall provide the short form disclosures orally and shall mail the long form disclosures and, if appropriate, a copy of the contract to the customer within 3 business days, beginning on the first business day after the telephone solicitation.

(D)  Special rule for solicitations using written mail inserts or "take one" applications. If the contract is solicited through written materials such as mail inserts or "take one" applications, the bank may provide only the short form disclosures in the written materials if the bank mails the long form disclosures to the customer within 3 business days, beginning on the first business day after the customer contacts the bank to respond to the solicitation, subject to the requirements of subsection (g)(3) of this section.

(E)  Special rule for electronic transactions.  The disclosure described in this section may be provided electronically in a manner consistent with the requirements of the Uniform Electronic Transactions Act, Texas Business and Commerce Code Chapter 322, and the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. 7001 et seq.

(4)  Form of disclosures.

(A)  Disclosures must be understandable.  The disclosures required by this subsection must be in plain language, i.e., conspicuous, simple, direct, readily understandable, and designed to call attention to the nature and significance of the information provided.

(B) Disclosures must be meaningful.  The disclosures required by this subsection must be in a meaningful form.  Examples of methods that could call attention to the nature and significance of the information provided include:

(i)  a plain-language heading to call attention to the disclosures;

(ii)  a typeface and type size that are easy to read;

(iii)  wide margins and ample line spacing;

(iv)  boldface or italics for key words; and

(v)  distinctive type style and graphic devices, such as shading or sidebars, when the disclosures are combined with other information.

(5)  Advertisements and other promotional material.  The short form disclosures are required in advertisements and promotional material for contracts unless the advertisements and promotional materials are of a general nature describing or listing the services or products offered by the bank.

(g)  Affirmative election to purchase and acknowledgment of receipt of disclosures required.

(1)  Affirmative election and acknowledgment of receipt of disclosures.  Before entering into a contract the bank must obtain a customer's written affirmative election to purchase a contract and written acknowledgment of receipt of the disclosures required by subsection (f) of this section.  The election and acknowledgment information must be in plain language, i.e., conspicuous, simple, direct, readily understandable, and designed to call attention to their significance.  The election and acknowledgment satisfy these standards if they conform with the requirements in subsection (f)(2) of this section.

(2)  Special rule for telephone solicitations.  If the sale of a contract occurs by telephone, the customer's affirmative election to purchase may be made orally, provided the bank:

(A)  maintains sufficient documentation to show that the customer received the short form disclosures and then affirmatively elected to purchase the contract;

(B)  mails the affirmative written election and written acknowledgment, together with the long form disclosures required by subsection (f)(2) of this section, to the customer within 3 business days after the telephone solicitation, and maintains sufficient documentation to show it made reasonable efforts to obtain the documents from the customer; and

(C)  permits the customer to cancel the purchase of the contract without penalty not later than 30 days after the date the bank has mailed the long form disclosures to the customer.

(3)  Special rule for solicitations using written mail inserts or "take one" applications.  If the contract is solicited through written materials such as mail inserts or "take one" applications and the bank provides only the short form disclosures in the written materials, then the bank shall mail the acknowledgment of receipt of disclosures, together with the long form disclosures required by subsection (f) of this section, to the customer within 3 business days, beginning on the first business day after the customer contacts the bank or otherwise responds to the solicitation.  The bank may not obligate the customer to pay for the contract until after the bank has received the customer's written acknowledgment of receipt of disclosures unless the bank:

(A)  maintains sufficient documentation to show that the bank provided the acknowledgment of receipt of disclosures to the customer as required by this section;

(B)  maintains sufficient documentation to show that the bank made reasonable efforts to obtain from the customer a written acknowledgment of receipt of long form disclosures; and

(C)  permits the customer to cancel the purchase of the contract without penalty within 30 days after the bank has mailed the long form disclosures to the customer.

(4)  Special rule for electronic election.  The affirmative election and acknowledgment may be made electronically in a manner consistent with the requirements of the Uniform Electronic Transactions Act, Texas Business & Commerce Code Chapter 322, and the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. 7001 et seq.

(h)  Safety and soundness.  A state bank must manage the risks associated with debt cancellation contracts and debt suspension agreements in accordance with safe and sound banking principles.  Accordingly, a state bank must establish and maintain effective risk management and control processes over its debt cancellation contracts and debt suspension agreements.  These processes include appropriate recognition and financial reporting of income, expenses, assets and liabilities, and appropriate treatment of all expected and unexpected losses associated with the products.  A bank should also assess the adequacy of its internal control and risk mitigation activities in view of the nature and scope of its debt cancellation contract and debt suspension agreement programs.

(i)  Notwithstanding the foregoing, until further notice, compliance with the following provisions of this section will not be required when a state bank, in connection with closed-end consumer credit extended by the bank (other than a residential mortgage loan), offers a debt cancellation contract or debt suspension agreement through an unaffiliated, non-exclusive agent:

(1) the requirement set forth in subsection (e) of this section to offer a periodic payment option;

(2) the requirement set forth in subsection (d)(1) of this section that a bank offering a customer a debt cancellation contract or debt suspension agreement without a refund provision also must offer the customer an option to purchase a comparable debt cancellation contract or debt suspension agreement that provides for a refund;

(3) the long-form disclosure requirement set forth in subsection (f)(2) of this section;

(4) the second short form disclosure set forth in subsection (f)(1)(B) of this section, informing the customer that he or she has the option to pay the fee in a single lump sum or in periodic payments;

(5) the third short form disclosure set forth in subsection (f)(1)(C) of this section, informing the customer that he or she has the option to purchase a debt cancellation contract or debt suspension agreement with a refund provision;

(6) the fifth short form disclosure set forth in subsection (f)(1)(E) of this section, indicating that the customer will receive additional information before being required to pay for the debt cancellation contract or debt suspension agreement; and

(7) the requirement set forth in subsection (g)(1) of this section to obtain a customer's written acknowledgment of receipt of disclosures.

Source: The provisions of this §12.33 adopted to be effective May 1, 2003, 28 TexReg 3494; amended to be effective September 6, 2007, 32 TexReg 5655; amended to be effective January 4, 2024, 48 TexReg 8332.

Subchapter C. Investment Limits

§12.61. Calculation of Investment Limit.

(a) The term "unimpaired capital and surplus" has the meaning assigned by §12.2 of this title (relating to Definitions).

(b) For purposes of determining compliance with investment restrictions under Finance Code, Chapter 34, a state bank shall determine its investment limit at the same time and in the same manner as it determines its lending limit under §12.11 of this title (relating to Calculation of Lending Limits), to be effective at the same time as its lending limit is effective under §12.11(b) of this title.

Source: The provisions of this §12.61 adopted to be effective September 6, 2007, 32 TexReg 5655.

§12.62. Hedging Investments.

(a) A hedging investment is an asset held incidental to a permissible banking activity in order to hedge the bank´s obligations, rather than as a security held by the bank for investment. The transaction is used to manage risks arising from otherwise permissible banking activities and not entered into for speculative purposes.

(b) A state bank may make an otherwise prohibited investment or exceed the statutory limits for an investment if for the purpose of hedging risks and not for engaging in speculative activities. Documentation underlying the investment decision must demonstrate that the hedging investment offers a particularly well matched and effective risk management mechanism for specific banking risks.

Source: The provisions of this §12.62 adopted to be effective September 6, 2007, 32 TexReg 5655.

Subchapter D. Investments2

§12.91. Other Real Estate Owned.3

(a) Definitions. Words and terms used in this subchapter that are defined in the Finance Code, §31.002, have the same meanings as defined in the Finance Code. The following words and terms when used in this subchapter shall have the following meanings unless the context clearly indicates the contrary.

(1) Appraisal-A written report by a state certified or licensed appraiser containing sufficient information to support the state bank´s evaluation of OREO taking into consideration market value, analyzing appropriate deductions or discounts, and conforming to generally accepted appraisal standards unless principles of safe and sound banking require stricter standards.

(2) Appraiser-A state certified or licensed staff appraiser or a state certified or licensed third party fee appraiser with relevant and competent experience and background as related to a particular appraisal assignment.

(3) Bank facility-Real property, including improvements, owned or leased to the extent of the lease by a state bank if the real estate is held for the purposes set forth in the Finance Code, §34.001, and is not disqualified under the Finance Code, §34.002(b). The term also includes capitalized leasehold improvements if held for the same purposes.

(4) Coterminous sublease-A lease with the same duration as the remainder of the master lease.

(5) Evaluation-A written report prepared by an evaluator describing the OREO and its condition, the source of information used in the analysis, the actual analysis and supporting information and the estimate of the OREO´s market value, with any limiting conditions.

(6) Evaluator-An individual who has related real estate training or experience and knowledge of the market relevant to the OREO but who has no direct or indirect interest in the OREO. An appraiser may be an evaluator.

(7) Generally accepted appraisal standards-The Uniform Standards of Professional Appraisal Practice (USPAP) promulgated by the Appraisal Standards Board, Appraisal Foundation, Washington, D.C.

(8) Market value-The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby:

(A) buyer and seller are typically motivated;

(B) both parties are well informed or well advised, and acting in what they consider their own best interests;

(C) a reasonable time is allowed for exposure in the open market;

(D) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and

(E) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.

(9) Non-coterminous sublease-A lease with a duration shorter than the remainder of the master lease.

(10) Other Real Estate Owned (OREO)-Real estate, including improvements, mineral interests, surface, and subsurface rights, owned in whole or in part or leased by a state bank, no matter how acquired, which is not a bank facility as defined by paragraph (3) of this subsection or leasehold property as permitted under the Finance Code, §34.204(a), but excluding nonparticipating royalty interests classified as personal property pursuant to Finance Code, §34.004.

(11) Staff appraiser-An appraiser on the staff of a state bank who has no direct or indirect interest in the OREO.

(12) Third party fee appraiser-An appraiser who has an independent contractor relationship with a state bank and has no direct or indirect interest in the OREO.

(13) Year-For the purposes of this section, a calendar year.

(b) Prohibition on real estate ownership. A state bank may not acquire or hold real estate except as specifically provided under the Finance Code, §§34.001-34.003 and 34.204(a), and this section.

(c) Acquisition of OREO. A state bank may acquire OREO only by:

(1) purchase under judicial or nonjudicial foreclosure, or through a deed in lieu of foreclosure, of real estate that is security for a debt or debts previously contracted in good faith;

(2) purchase to protect its interest in a debt or debts previously contracted if prudent and necessary to avoid or minimize loss;

(3) purchase of an employee´s principal residence to facilitate a change of duty assignment or relocation upon employment;

(4) with prior written approval of the banking commissioner, an exchange of OREO or personal property for real estate to avoid or minimize loss on the real estate exchanged or to facilitate the disposition of OREO;

(5) with prior written approval of the banking commissioner, purchase of additional real estate to avoid or minimize loss on OREO currently held;

(6) involuntary acquisition of an ownership interest or leasehold interest in real estate as a result of or incidental to a judicial or nonjudicial foreclosure, or by adverse possession, or by operation of law without any action on the part of the state bank to obtain such interest; or

(7) loss of designation of real estate owned or leased by the state bank as a bank facility.

(d) Appraisal requirements.

(1) Subject to paragraph (2) of this subsection, when OREO is acquired, a state bank must substantiate the market value of the OREO by obtaining an appraisal within 90 days of the date of acquisition, unless extended by the banking commissioner. An evaluation may be substituted for an appraisal if the recorded book value of the OREO is $500,000 or less.

(2) An additional appraisal or evaluation is not required when a state bank acquires OREO if a valid appraisal or appropriate evaluation was made in connection with the real estate loan that financed the acquisition of the OREO and the appraisal or evaluation is less than one year old.

(3) An evaluation shall be made on all OREO at least once a year. An appraisal shall be made at least once every three years, unless extended by the banking commissioner, on OREO with a recorded book value in excess of $500,000.

(4) Notwithstanding another provision of this section, the banking commissioner may require an appraisal of OREO if the banking commissioner considers an appraisal necessary to address safety and soundness concerns.

(e) Additional expenditures on OREO. A state bank may re-fit OREO for new tenants or make normal repairs and incur routine maintenance costs to preserve or protect the value of the OREO or to render the OREO in saleable condition without prior notification to or approval by the banking commissioner. Other advances or additional expenditures on OREO must have the prior written approval of the banking commissioner, and must not be:

(1) made for the purpose of speculation in real estate;

(2) made for the purpose of changing or altering the current status or intended use of the OREO; and

(3) inconsistent with safe and sound banking practices.

(f) Holding period.

(1) A state bank must dispose of OREO no later than five years after the date it was acquired, ceases to be used as a bank facility,  or ceases to be a bank facility as provided by Finance Code, §34.002(b), unless an extension of time for disposing of the real estate is granted in writing by the banking commissioner pursuant to Finance Code, §34.003(d).

(2) The holding period commences on the date that:

(A) ownership is acquired by the state bank pursuant to subsection (c)(1) - (5) of this section;

(B) OREO is acquired by a state bank through merger/consolidation, conversion or purchase and assumption;

(C) the bank first learns of its ownership interest in real estate which has devolved to the bank by operation of law under subsection (c)(6) of this section;

(D) the bank ceases to use a former bank facility or completes its relocation from a former bank facility to a new bank facility; or

(E) is three years following the acquisition of real estate as a bank facility for future expansion or relocation of the bank if the real estate has not been occupied by the bank, unless the banking commissioner has granted written approval to a further delay in the improvement and occupation of the real estate.

(3) The banking commissioner may grant one or more additional extensions of time for disposing of OREO if the banking commissioner finds that the state bank has made a good faith effort to dispose of the OREO or that disposal of the OREO would be detrimental to the safety and soundness of the state bank.

(g) Disposition Efforts; Documentation. A state bank must make diligent and ongoing efforts to dispose of OREO and must maintain documentation adequate to reflect those efforts. Such documentation must be available for inspection by the banking commissioner.

(h) Disposition of OREO. A state bank may dispose of OREO by:

(1) selling the OREO in a transaction that qualifies as a sale under regulatory accounting principles;

(2) selling the OREO pursuant to a land contract or contract for deed;

(3) retaining the OREO for its own use as a bank facility, subject to the approval of the banking commissioner, including residential OREO retained for the purpose of providing temporary housing for employees if:

(A) the bank has two or more locations of sufficient distance that overnight travel is required in connection with business at either location; and

(B) the board has certified that the cost of purchasing and maintaining the property is reasonable in comparison to other options for temporarily housing employees;

(4) transferring the OREO to a majority-owned subsidiary in compliance with 12 C.F.R. §362.4(b)(5)(i);

(5) transferring the OREO for market value to an affiliate, subject to the Finance Code, §33.109, and applicable federal law, including 12 U.S.C. §§371c, 371c-1, and 1828(j);

(6) if the OREO is a master lease, obtaining a coterminous sublease or an assignment of a coterminous sublease, provided that if the bank acquires or obtains assignment of a non-coterminous sublease, the holding period during which the master lease must be divested is suspended for the duration of the sublease and will commence running again upon termination of the sublease; or

(7) entering into a transaction that does not qualify for disposal under paragraphs (1) - (5) of this section; provided that its obligation to dispose of the OREO is not met until the bank receives or accumulates from the purchaser an amount in cash, principal and interest payments, and private mortgage insurance totaling 10% of the sales price, as measured in accordance with regulatory accounting principles.

(i) Accounting for OREO. Investment in OREO, and disposition of OREO, must be accounted for in accordance with regulatory accounting principles.

Source: The provisions of this §12.91 adopted to be effective March 1, 1996, 21 TexReg 1527; amended to be effective November 13, 1997, 22 TexReg 10954; amended to be effective July 10, 2003, 28 TexReg 5149; amended to be effective September 6, 2007, 32 TexReg 5655; amended to be effective November 7, 2013, 38 TexReg 7687; amended to be effective January 5, 2017, 41 TexReg 10562; amended to be effective September 10, 2020, 45 TexReg 6228.

CHAPTER 15. CORPORATE ACTIVITIES (TITLE 7; PART 2)

Subchapter A.  Fees and Other Provisions of General Applicability

§15.1.  Definitions.

Words and terms used in this chapter that are defined in the Finance Code, Title 3, Subtitle A or Subtitle G, have the same meanings as defined in the Finance Code. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Accepted filing-An application, request, notice, or protest filed with the banking commissioner pursuant to the Finance Code, Title 3, Subtitle A or G, this chapter, or another rule adopted pursuant to the Finance Code if:

(A)  the appropriate fee has been paid pursuant to §15.2 of this title (relating to Filing and Investigation Fees); and

(B)  the banking commissioner has received sufficient information to reach an informed decision and has notified the person or entity who submitted the filing, in writing, that the submission is complete and has been accepted for filing.

(2) Community-The area delineated by a state bank as the local community or communities that comprise a state bank´s entire community pursuant to the Community Reinvestment Act (CRA), 12 United States Code (USC), §§2901 et seq and any rules or regulations adopted pursuant to CRA. The community may include the delineated area for the purposes of CRA in which the person or entity that is required or authorized to publish public notice proposes to engage in business, is currently engaged in business, or wishes to abandon.

(3) Day-A calendar day.

(4) Eligible bank-A state bank that:

(A) is well capitalized as defined in Section 38, Federal Deposit Insurance Act, 12 USC §1831o, or is operating in compliance with a capital plan approved in writing by the banking commissioner;

(B) received a composite rating of either 1 or 2 as defined by the Uniform Financial Institutions Rating System at the most recent examination by the department or federal regulatory agencies;

(C) received a CRA rating of either outstanding or satisfactory at the bank´s most recent inspection by the appropriate federal regulatory agency;

(D) is not presently operating in violation of a regulatory condition or commitment letter imposed by a state or federal banking regulatory agency; and

(E) is not presently operating under a memorandum of understanding; determination letter or other notice of determination; order to cease and desist, or other state or federal administrative enforcement order issued by a state or federal banking regulatory agency.

(5) General interest items-Include, but are not limited to, local and international news, weather, sports, features, comics, entertainment and advertisements directed to the general public.

(6) Low or moderate income area-A designated geography for CRA purposes, as defined in 12 CFR, §228.12(m)(1) and (m)(2), for state member banks, or 12 CFR, §345.12(m)(1) and (m)(2), for state nonmember banks.

(7) Newspaper of general circulation-A newspaper that:

(A) devotes not less than 25% of its total column lineage to general interest items, provided that a newspaper of general circulation does not include a specialized newspaper or other periodical directed to a specific interest group or occupation, such as a legal notice or court related newspaper;

(B) is published at least once a week;

(C) is entered as second class postal matter in the county where published; and

(D) has been published regularly and continuously for at least 12 months before the applicant, protesting party or other entity publishes notice, provided that a weekly newspaper is considered to have been published regularly and continuously if the newspaper omits not more than three issues in a 12-month period.

(8) Public notice-A notice published in a newspaper of general circulation concerning the subject matter of a submitted filing.

(9) Submitted filing-An application, request, notice, or protest, that is neither an accepted filing nor an abandoned filing, filed under the Finance Code, Title 3, Subtitle A or G, this chapter, or another rule adopted pursuant to the Finance Code.

Source: The provisions of this §15.1 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective September 15, 1997, 22 TexReg 8948; amended to be effective March 12, 1998, 23 TexReg 2287; amended to be effective November 12, 2003, 28 TexReg 9825; amended to be effective January 2, 2020, 44 TexReg 8232; amended to be effective March 12, 2024, 49 TexReg 1457.

§15.2.  Filing and Investigation Fees.

(a) Types of fees. Subsection (b) of this section contains filing fees for specified applications and notices filed with the department, and subsection (c) of this section requires a fee for protesting an application. These fees are due at the time of filing the application or protest. Subsection (d) of this section requires an investigation fee to be paid in certain cases once an application has been accepted by the department for filing, and in other cases may require payment of investigative costs upon written request of the department. Pursuant to subsection (e) of this section, an applicant may seek waiver or reduction of required fees.

(b) Filing fees. Simultaneously with a submitted application or notice, an applicant shall pay to the department:

(1) $15,000 for an application for bank charter pursuant to Finance Code, §32.003, provided that the department will not require a filing fee for an application for a bank charter to be located in a low or moderate income area and where no other depository institution operates a branch or home office;

(2) a fee for an application for conversion to a state bank charter pursuant to Finance Code, §32.502, and §15.108 of this title (relating to Conversion of a Financial Institution into a State Bank), based on total assets as follows, except that the listed fee may be reduced by 50% if the application is eligible for expedited treatment pursuant to §15.103 of this title (relating to Expedited Filings):

(A) $5,000 for an applicant with total assets of less than $100 million;

(B) $10,000 for an applicant with total assets of $100 million or more but less than $500 million;

(C) $15,000 for an applicant with total assets of $500 million or more but less than $1 billion; or

(D) $25,000 for an applicant with total assets of more than $1 billion;

(3) a fee for an application to authorize a merger or share exchange (including an interstate transaction) pursuant to Finance Code, §32.302, and §15.104 of this title (relating to Application for Merger or Share Exchange), based on total combined assets as follows:

(A) $7,500 for a merger or share exchange with combined assets of less than $1 billion, or $4,000 if the application is eligible for expedited treatment pursuant to §15.103 of this title; or

(B) $15,000 for a merger or share exchange with combined assets of $1 billion or more, or $7,500 if the application is eligible for expedited treatment pursuant to §15.103 of this title;

(4) $2,000 for each request to authorize an additional merger if more than one affiliated merger is to occur simultaneously;

(5) $5,000 for an application to authorize a purchase of assets exceeding three times the amount of the bank's unimpaired capital and surplus (including an interstate transaction) pursuant to Finance Code, §32.401, and §15.105 of this title (relating to Application for Authority to Purchase Assets of Another Financial Institution), or $2,500 if the application is eligible for expedited treatment pursuant to §15.103 of this title;

(6) $2,500 for an application to authorize the sale of assets exceeding three times the amount of unimpaired capital and surplus (including an interstate transaction) pursuant to Finance Code, §32.405, and §15.106 of this title (relating to Application for Authority to Sell Assets);

(7) $2,000 for an application to establish a branch office (including an interstate transaction) pursuant to Finance Code, §32.203, and §15.42 of this title (relating to Establishment and Closing of a Branch Office), or $1,000 if the application is eligible for expedited treatment pursuant to §15.3 of this title (relating to Expedited Filings), provided that the department will not require a filing fee for an application for a new branch office to be located in a low or moderate income area and where no other depository institution operates a branch or home office;

(8) $200 for a notice of branch relocation pursuant to §15.42(j) of this title;

(9) $1,000 for a subsidiary notice letter pursuant to Finance Code, §34.103, plus an amount up to an additional $3,500 if the banking commissioner notifies the applicant that additional information and analysis is required;

(10) $10,000 for an application regarding acquisition of control pursuant to Finance Code, §33.002, and §15.81 of this title (relating to Application for Acquisition or Change of Control of State Bank), or $5,000 if the applicant has previously been approved to control another state bank and no material changes in the applicant's circumstances have occurred since the prior approval;

(11) $500 for a notice to change the home office to an existing branch office while retaining the existing home office as a branch office pursuant to Finance Code, §32.202, and §15.41(a) of this title (relating to Written Notice or Application for Change of Home Office);

(12) $2,000 for an application to relocate the home office pursuant to Finance Code, §32.202, and §15.41(b) of this title, or $1,000 if the application is eligible for expedited treatment pursuant to §15.3 of this title, provided that the fee is $5,000 for an application to relocate the home office of a to-be-acquired charter without significant business activities;

(13) $500 for a notice regarding establishment of an office pursuant to §3.91 of this title (relating to Loan Production Offices), or §3.93 of this title (relating to Deposit Production Offices);

(14) $5,000 for an application for a foreign bank branch or agency license pursuant to Finance Code, §204.101, and §3.41(a) of this title (relating to Applications, Notices and Reports Related to Foreign Bank Branches and Agencies);

(15) $1,000 for the statement of registration of a foreign bank representative office pursuant to Finance Code, §204.201, and §3.44(b) of this title (relating to Statements of Registration, Notices and Filings Related to Foreign Bank Representative Offices);

(16) $300 for an application to amend a bank charter (certificate of formation) pursuant to Finance Code, §32.101;

(17) $2,500 for an application to authorize a reverse stock split subject to the substantive provisions of §15.122 of this title (relating to Amendment of Certificate to Effect a Reverse Stock Split);

(18) $2,000 for filing a copy of an application to acquire a bank or bank holding company pursuant to Finance Code, §202.001;

(19) $1,000 for filing a copy of an application to acquire a nonbank entity pursuant to Finance Code, §202.004;

(20) $100 for a request for a "no objection" letter to use a name containing a term listed in Finance Code, §31.005;

(21) $1,000 for an application to authorize acquisition of treasury stock pursuant to Finance Code, §34.102, and §15.121 of this title (relating to Acquisition and Retention of Shares as Treasury Stock);

(22) $1,000 for a request to authorize an increase or reduction in capital and surplus pursuant to Finance Code, §32.103; and

(23) $500 for an application for release from a final removal or prohibition order pursuant to Finance Code, §35.0071.

(c) Filing fee for protest. A person or entity filing a protest to the application of another person or entity shall pay a fee of $2,500 simultaneously with such protest filing. The purpose of the fee required under this subsection is to partially offset the department's increased cost of processing and reduce the costs incurred by the applicant resulting solely from the protest.

(d) Investigative fees and costs. An applicant for a bank charter or conversion to a state bank shall pay an investigation fee of $10,000 once the application has been accepted for filing. If required by the banking commissioner, an applicant under another type of application or filing listed in subsection (b) of this section shall pay the reasonable investigative costs of the department incurred in any investigation, review, or examination considered appropriate by the department, calculated as provided by §3.36(h) of this title (relating to Annual Assessments and Specialty Examination Fees). Such investigation fee or costs must be paid by the applicant upon written request of the department. Failure to timely pay the investigation fee or a bill for investigative costs constitutes grounds for denial of the submitted or accepted filing.

(e) Reduction or waiver of fees. Fees paid are nonrefundable and the banking commissioner shall charge fees on a consistent and nondiscriminatory basis. However, in the exercise of discretion, the banking commissioner may reduce, waive, or refund all or part of a filing fee, investigation fee, or bill for investigative costs if the banking commissioner concludes that:

(1) the application demonstrates that the fee creates an unreasonable hardship on the applicant; or

(2) the nature of the application will result in substantially reduced processing time compared to normal expectations for an application of that type.

(f) Severability. If any fee or cost recovery set forth in this section is finally determined by a court of competent jurisdiction to be invalid, that fee or cost recovery shall be severed from this section and the remainder of this section shall remain fully enforceable.

Source: The provisions of this §15.2 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective November 13, 1997, 22 TexReg 10955; amended to be effective March 12, 1998, 23 TexReg 2287; amended to be effective November 12, 2003, 28 TexReg 9825; amended to be effective March 8, 2012, 37 TexReg 1497; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective January 2, 2014, 38 TexReg 9482; amended to be effective May 5, 2016, 41 TexReg 3099; amended to be effective January 2, 2020, 44 TexReg 8232.

§15.3.  Expedited Filings.

(a) An eligible bank may file an expedited filing according to forms and instructions provided by the department solely for the following matters, together with the fee required by §15.2 of this title (relating to Filing and Investigation Fees):

(1) a branch application pursuant to Finance Code, §32.203, and §15.42 of this title (relating to Establishment and Closing of a Branch Office); and

(2) home office relocations less than one mile with no abandonment of the community pursuant to the Finance Code, §32.202(c), and §15.41 of this title (relating to Written Notice or Application for Change of Home Office).

(b) Notwithstanding another provision of this section, the banking commissioner may deny expedited filing treatment to an eligible bank, in the exercise of discretion, if the banking commissioner finds that the filing involves one or more of the following:

(1) the proposed transaction involves significant policy, supervisory, or legal issues;

(2) approval of the proposed transaction is contingent on additional statutory or regulatory approval by the banking commissioner or another state or federal regulatory agency;

(3) the proposed transaction will result in a fixed asset investment in excess of the limitation contained in the Finance Code, §34.002(a);

(4) the proposed transaction requires the approval of the banking commissioner under the Finance Code, §33.109(b);

(5) the proposed transaction involves an issue of parity between state and national banks pursuant to the Finance Code, §32.009;

(6) the proposed transaction significantly impacts the strategic plan of the bank;

(7) the proposed transaction will result in a decrease in capital below the levels required to qualify as an eligible bank;

(8) the proposed transaction will result in an abandonment of the community pursuant to the Finance Code, §32.202(d);

(9) the proposed transaction involves an issue of regulatory concern as determined by the banking commissioner in the exercise of discretion; or

(10) the application is deficient and specific additional information is required, or the filing fee has not been paid.

(c) The department shall notify the applicant on or before the 15th day after receipt of the application if expedited filing treatment is not available under this section. Such notification of denial must be in writing and must indicate the reason why expedited treatment is not available. Notification is effective when mailed by the department and is not subject to appeal.

(d) If expedited filing treatment is denied, the applicant shall submit any additional fee required by §15.2 of this title on or before the fifth business day after receipt of the notice.

(e) Unless the applicant is otherwise notified by the department, an expedited filing is approved on the 15th day after the later of the date the application is complete and accepted for filing, or expiration of the period for filing a comment, protest, response or reply, whichever is the last to occur, unless a protest is filed. If a protest is filed, the application will be processed under §15.41 or §15.42 of this title, whichever is applicable.

Source: The provisions of this §15.3 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective November 13, 1997, 22 TexReg 10955; amended to be effective November 12, 2003, 28 TexReg 9825; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective January 2, 2014, 38 TexReg 9482; amended to be effective May 5, 2016, 41 TexReg 3099; amended to be effective March 12, 2024, 49 TexReg 1457.

§15.4.  Required Information and Abandoned Filings.

(a) Required information. The banking commissioner may investigate and evaluate facts related to a submitted filing or accepted filing to the extent necessary to reach an informed decision. The banking commissioner may require any person or entity connected with the matter to which the submitted or accepted filing pertains to submit additional information, including, but not limited to, an opinion of counsel with respect to a matter of law or an opinion, review or compilation prepared by a certified public accountant.

(b) On or before the 15th day after initial submission of an application, the banking commissioner shall issue a written notice informing the applicant either that all filing fees have been paid and the application is complete and accepted for filing, or that the application is deficient and specific additional information is required.

(c) Time limit for providing required information. An applicant must provide all information necessary for the banking commissioner to declare that a submission is an accepted filing, whether the information is required by form or rule or is requested by the department. The information must be provided to the department on or before the 61st day after the date of initial submission of the filing, except as otherwise provided by law. Upon a finding of good and sufficient cause, the banking commissioner shall grant an applicant additional time to complete the application. Extensions will be communicated to the applicant before the expiration of the filing period.

(d) Abandoned filing. The banking commissioner may determine any submitted or accepted filing to be abandoned, without prejudice to the right to refile, if the information required by the Finance Code, this chapter, or any rule or regulation adopted pursuant to the Finance Code, or additional requested information, is not furnished within the time period specified by subsection (c) of this section or as requested by the department, in writing to the person or entity making the submission. The banking commissioner may determine a submitted or accepted filing, for which additional fees or costs are required by the Finance Code or by this chapter to be abandoned if those amounts are not paid by the deadline stated by the department, which shall be at least 14 days from the date the deadline is communicated in writing to the applicant.

(e) Notice. The banking commissioner shall give written notice of any submitted or accepted filing considered to be abandoned. Notice of abandonment shall be effective upon mailing by the department. Fees paid related to an abandoned filing are nonrefundable.

Source: The provisions of this §15.4 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective February 14, 1997, 22 TexReg 1311; amended to be effective November 12, 2003, 28 TexReg 9825; amended to be effective September 4, 2014, 39 TexReg 6824.

§15.5.  Public Notice.

(a) General. A person or entity required or authorized to file public notice, including a person or entity requesting authorization for a merger, purchase of assets, a conversion, an applicant for a foreign bank agency, or another application requiring public notice, shall publish notice in a newspaper of general circulation in its specified community or in an alternative form of publication acceptable to the banking commissioner and in such other locations as may be required by the banking commissioner.

(b) Contents. The public notice must state that a filing is being made; the date (or expected date) of the filing; sufficient information describing the proposed transaction, and other related information required by the Finance Code, Title 3, Subtitle A or G, this chapter, or another rule adopted pursuant to the Finance Code. The notice must also contain any other information as may required by the banking commissioner. In addition, the notice must include substantially the following text as a separately stated paragraph:

"Any person wishing to comment on this application, either for or against, may file written comments with the Texas Department of Banking, 2601 North Lamar Boulevard, Austin, Texas 78705-4294 on or before the 14th day after the date of this publication. Such comments will be made a part of the record before and considered by the banking commissioner. Any person wishing to formally protest and oppose (describe type of application in general terms) and participate in the application process may do so by filing a written notice of protest with the Texas Department of Banking on or before the 14th calendar day after the date of this publication accompanied by a protest filing fee of $2,500. The protest fee may be reduced or waived by the banking commissioner upon a showing of substantial hardship."

(c) Publisher's affidavit. A person or entity required to file public notice under this section shall file with the banking commissioner a copy of the notice and a publisher's affidavit attesting to the date of publication.

(d) One Publication Sufficient. Unless otherwise required by the Finance Code or rules and regulations adopted pursuant to the Finance Code, one public notice publication per submitted or accepted filing in each community specified by the banking commissioner is sufficient if in substantial compliance with this section and chapter and with the Finance Code, as determined by the banking commissioner. The banking commissioner reserves the right to require additional publication based on a determination that a particular publication is insufficient or is otherwise not in compliance.

Source: The provisions of this §15.5 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective March 21, 1997, 22 TexReg 2608; amended to be effective November 12, 2003, 28 TexReg 9825; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective March 12, 2024, 49 TexReg 1457.

§15.6.  Applications for Bank Charter: Notices to Applicants; Application Processing Times; Appeals.

(a) Form of application. An application to engage in a business under the Finance Code, §32.003, must be filed on a form prescribed by the banking commissioner.

(b) Notice to applicant. The banking commissioner shall issue a written notice as required by §15.4 of this title (relating to Required Information and Abandoned Filings) informing the applicant either that all filing fees have been paid and the application is complete and accepted for filing, or that the application is deficient and specific additional information is required. If a protest is timely filed, the department will notify the applicant of the protest.

(c) Action on applications. If an application is not protested and if the banking commissioner has not ordered a hearing, the banking commissioner shall approve or deny an application for a state bank charter or an application for conversion of a financial institution to a state bank on or before the 180th day after the date the application is accepted for filing, unless extended by written agreement between the applicant and the banking commissioner. If the application is protested, the application will be acted on in accordance with §15.10 of this title (relating to Protested Applications).

(d) Violation of Processing Times. If an application is not protested or a hearing is not convened, an applicant may appeal directly to the banking commissioner for a timely resolution of a dispute arising from a violation of a processing period set forth in this section. An applicant may appeal by filing a written request with the banking commissioner on or before the 30th day after the date the decision is made on the application, requesting review by the banking commissioner to determine whether the established period for the granting or denying of the application has been exceeded. The decision on the appeal shall be based on the written appeal filed by the applicant, any response by the department, and any agreements between the parties. The banking commissioner may convene a hearing to take evidence on the matter.

(e) Decision on appeal. The banking commissioner shall decide the appeal in the applicant´s favor if the banking commissioner determines that the time periods established in this section have been exceeded and the department has failed to establish good cause for the delay. The banking commissioner shall issue a written decision to the applicant on or before the 60th day after the filing of an appeal. If an appeal is decided in an applicant´s favor, the department will reimburse the application fee paid by the applicant. A decision in favor of the applicant under this subsection does not affect a decision to grant or deny the application based on applicable substantive law without regard to whether the application was timely processed.

Source: The provisions of this §15.6 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective November 13, 1997, 22 TexReg 10955; amended to be effective July 10, 2008, 33 TexRex 5275; amended to be effective March 12, 2024, 49 TexReg 1457.

§15.7.  Submission of Documents and Reproductions.

(a) Scope. This section governs submission of documents to the department for processing by the corporate activities division of the department pursuant to this chapter, and does not permit, prohibit, or affect correspondence with or documents submitted to the department for another purpose, including:

(1) applications submitted to the non-depository supervision division of the department; and

(2) documents submitted to the department as required or permitted by Government Code, Chapter 2001, and Chapter 9 of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings).

(b) Reproduction. For purposes of this section, the term reproduction means:

(1) a photographic or photostatic copy or similar reproduction of an original document that is submitted to the department by mail or hand delivery;

(2) a facsimile copy of an original document submitted by telephonic document transmission to the fax number specified by the department; or

(3) if permitted by the department with respect to a specific filing, an electronic copy of an original document by electronic means as authorized by the department.

(c) Filings. Subject to the length limitations of subsection (d) of this section, a document required or authorized to be filed with the department may be a reproduction, including an application or a supplement to or substitution for a portion of a previously filed and accepted application. Receipt of a reproduction by the department is not equivalent to accepted for filing.

(d) Page limitations. A document submitted by telephonic document transmission to the department’s fax machine may not exceed 25 pages in total length, including the transmittal document required by subsection (e) of this section, or it will be rejected for filing. The transmission of portions of any particular filing at different times is treated as one reproduction for purposes of this subsection.

(e) Transmittal document. A cover sheet or transmittal document must accompany every reproduction submitted under this section and must:

(1) clearly identify the sender by name, address, and phone number, the documents being delivered or transmitted, and the number of pages in the submission;

(2) contain clear and concise instructions concerning the sender’s request with respect to the submission; and

(3) contain complete and accurate information regarding the payment of required filing fees, if any.

(f) Time of receipt. To be considered received by the department, a document must be in clearly legible form. Documents submitted by mail or hand delivery must be delivered during regular business hours of the department. For documents submitted by mail or hand delivery, the date and time the submission is actually received by the department will determine the time of receipt. For reproductions submitted by telephonic document transmission, the date and time imprinted by the department’s fax machine on the last page of a reproduction submitted by telephonic document transfer will determine the time of receipt. For reproductions submitted by email, the date and time reflected by the department’s email system will determine the time of receipt. Any document received after 4:30 p.m. on a business day, or on a non-business day, is considered received at 8:00 a.m. on the next business day. A document will not be considered received until the department receives the entire document and the required filing fee, if any.

(g) Equivalent of original. For all purposes attendant to filing, a reproduction of a document filed with the department under this section, including reproduction of signatures thereon, is considered an original document.

Source: The provisions of this §15.7 adopted to be effective July17, 1997, 22 TexReg 6429; amended to be effective November 12, 2003, 28 TexReg 9825; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective January 2, 2020, 44 TexReg 8232; amended to be effective March 12, 2024, 49 TexReg 1457.

§15.8.  [Repealed Effective September 9, 2010]

§15.9.  Corporate Filings. 

(a)  In accordance with the applicable provisions of the Finance Code, Title 3, Subtitle A or G, the following corporate forms regarding a state bank, along with the applicable filing fees, must be filed with the banking commissioner:

(1)  a certificate of correction as authorized by Texas Business Organizations Code (TBOC), §4.101;

(2)  certificate of amendment under the Finance Code, §32.101;

(3)  restated, or, amended and restated, certificate of formation under the Finance Code, §32.101, and TBOC, §3.059 and §21.052;

(4)  certificate of merger under the Finance Code, §32.301 et seq, as supplemented by the TBOC, §10.151;

(5)  certificate of exchange under TBOC, §10.151;

(6)  statement of event or fact pursuant to TBOC, §4.055;

(7)  establishment of a series of shares by the board of directors under the Finance Code, §32.102, as supplemented by TBOC, §21.155 and §21.156;

(8)  statement regarding a restriction on the transfer of shares under TBOC, §21.212; and

(9)  abandonment of a merger or interest exchange prior to its effective date under TBOC, §4.057.

(b)  For purposes of corporate filings with the banking commissioner under subsection (a) of this section, state banks may utilize a modified version of forms promulgated by the secretary of state if the banking commissioner or the finance commission has not promulgated an appropriate corporate form; however, the banking commissioner may require the submission of additional information. The modified corporate forms must:

(1)  specifically reference the applicable provisions of the Finance Code;

(2)  change references from "corporation" to "association"; and

(3)  change the references to "stated capital" and similar terms defined in the TBOC to an appropriate reference to terms defined in the Finance Code.

(c)  In accordance with the applicable provisions of the Finance Code and the TBOC, a state bank may file the following corporate forms with the secretary of state as instructed in the Finance Code or the TBOC:

(1)  name registrations under TBOC, §§5.151-5.155;

(2)  assumed name certificates under TBOC, §5.051;

(3)  a statement appointing an agent authorized to receive service of process under Finance Code, §201.103;

(4)  an amendment to a statement appointing an agent to receive service of process under Finance Code, §201.103; and

(5)  a cancellation of the appointment of an agent to receive service of process under Finance Code, §201.103.

(d)  The following corporate forms are inapplicable to state banks and are not required to be filed by a state bank with either the secretary of state or the banking commissioner:

(1)  changes of registered office or agent under TBOC, §5.202 or §5.203;

(2)  name reservations under TBOC, §5.101;

(3)  certificate of termination under TBOC, §11.101; and

(4)  certificate of reinstatement under TBOC, §11.202.

Source:The provisions of this §15.9 adopted to be effective July 10, 2008, 33 TexReg 5275; amended to be effective September 9, 2010, 35 TexReg 8101; amended to be effective November 7, 2013, 38 TexReg 7687.

§15.10.  Protested Applications.

(a)  A protest of a charter application must be received by the department before the 15th day after the date the organizers publish notice and must be accompanied by any fee required by §15.5(b) of this title (relating to Public Notice). If the protest is untimely, the department will return all 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 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. The protesting party must relate each statement and response in his protest to the standards for approval set forth in Finance Code §32.003(b).

(c)  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.

(d)  The protesting party's response and the applicant's reply must be in the form and must be served as required by Finance Code §32.005(b). Any comment received by the department and any reply of the applicant to the comment shall be made available to the protesting party.

Source: The provisions of this §15.10 adopted to be effective July 10, 2008, 33 TexReg 5275.

§15.11.  Hearings on Applications.

(a)  The banking commissioner may not be compelled to hold a hearing before granting or denying the charter application. The banking commissioner may grant a hearing at the request of an applicant or a protesting party. The banking commissioner may order a hearing without any party having requested one.

(b)  A party requesting a hearing must indicate with specificity the issues involved that cannot be determined on the basis of the record complied under §15.10(b) - (d) of this title (relating to Protested Applications) and why the issues cannot be determined.

(c)  If the banking commissioner sets a hearing, the banking commissioner shall conduct a public hearing and one or more prehearing conferences as the banking commissioner considers advisable and consistent with applicable law. The banking commissioner shall also allow the parties to undertake such discovery as the banking commissioner considers advisable and consistent with applicable law, except that the banking commissioner may not permit discovery of confidential information in the charter application or the investigation report.

Source: The provisions of this §15.11 adopted to be effective July 10, 2008, 33 TexReg 5275.

§15.12.  Waiver of Requirements.

The banking commissioner in the exercise of discretion may waive or modify any requirement imposed by this chapter, unless specifically required by statute.

Source: The provisions of this §15.12 adopted to be effective July 10, 2008, 33 TexReg 5275.

Subchapter B. Bank Charters

§15.23.  Application for Interim Bank Charters.

(a) General. The banking commissioner may issue an interim state bank charter solely for the purpose of facilitating the acquisition, reorganization, or merger of a pre-existing bank, if the resulting bank will engage in the business of banking in substantially the same markets. The applicant must submit the application for an interim bank charter on a form prepared and prescribed by the banking commissioner and tender the required filing fee pursuant to §15.2 of this title (relating to Filing and Investigation Fees). The applicant must describe in detail the entire transaction in which the interim bank charter is proposed to be used and identify the resulting bank after completion of the transaction.

(b) Public Notice. Upon submission of application, the applicant shall publish notice as required by §15.5 of this title (relating to Public Notice) and in the community where the resulting bank is to be located.

(c) Public Comment. No hearing will be held regarding the issuance of an interim bank charter unless the banking commissioner, in the exercise of discretion, sets and convenes a hearing. Persons or entities submitting comments will not be entitled to further notice of or participation in the interim bank charter application proceedings.

(d) Adequacy of Capital. The banking commissioner shall determine the adequacy of capital for a proposed interim bank charter, except that an interim bank may not be chartered with a capital less than $5,000.

Source: The provisions of this §15.23 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective January 2, 2020, 44 TexReg 8232.

§15.24.  Option to Withhold Identity of Officers.

An applicant for a state bank may, at its option, withhold the identity of prospective officers until such time as the banking commissioner issues a final order on the application. Approval of the application is conditioned upon filing, with the banking commissioner, the required information and authorizations on qualified proposed officers. Upon receipt of the required information, the banking commissioner shall review and investigate the qualification of the proposed officers and deliver the certificate of authority pursuant to the Finance Code, §32.006, if the banking commissioner finds that the proposed officers meet the requirements of the Finance Code, §32.003(b)(4).

Source: The provisions of this §15.24 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective November 12, 2003, 28 TexReg 9825.

Subchapter C. Bank Offices

§15.41.  Written Notice or Application for Change of Home Office.

(a) Relocation by notice. Unless an application under subsection (b) of this section is required, a state bank may change its home office to one of its previously established branches pursuant to the Finance Code, §32.202(b), by filing a written notice containing the information required by subsection (c) of this section, accompanied by the filing fee required by §15.2 of this title (relating to Filing and Investigation Fees). A bank may relocate its home office immediately after the required notice and fee has been acknowledged in writing as complete and accepted for filing by the banking commissioner. An application under subsection (b) of this section is required if the proposed home office relocation:

(1) will result in an abandonment of all or part of the community served by the bank's present home office location; or

(2) is anticipated to result in a reduction in banking services presently offered by the bank at its present home office location within the 18 month period after the effective date of the relocation.

(b) Relocation by application.

(1)  A state bank relocating its home office must file an application setting forth the information required by subsection (c) of this section, accompanied by the required filing fee pursuant to §15.2 of this title if it is a relocation pursuant to:

(A)  the Finance Code, §32.202(b) and subsection (a) of this section does not apply; or

(B)  the Finance Code, §32.202(c).

(2)  An eligible bank may file an expedited application pursuant to §15.3 of this title (relating to Expedited Filings).

(3)  On or before the 15th day after initial submission of an application, the banking commissioner will issue the written notice required by §15.4(b) of this title (relating to Required Information and Abandoned Filings).

(4)  Except as otherwise provided in this section and to the extent applicable, the banking commissioner will evaluate an application under this subsection in light of the Finance Code, §32.202(d), and apply the criteria applicable to an application for a branch office under §15.42(e) of this title (relating to Establishment and Closing of a Branch Office).

(5)  An applicant under this subsection may not relocate its home office without the prior written approval of the banking commissioner.

(c) Contents of notice or application. The notice filed under subsection (a) of this section or the application submitted under subsection (b) of this section must disclose:

(1) the name of the bank requesting the home office relocation;

(2) the street address of the bank's home office before the requested home office relocation;

(3) the street address of the bank's proposed home office;

(4) the effective date of the home office relocation under subsection (a) of this section, or the requested effective date for a proposed home office relocation under subsection (b) of this section;

(5) a copy of the resolution adopted by the bank's board of directors authorizing the proposed home office relocation;

(6) a written statement signed by the principal executive officer of the bank or a majority of the bank's board of directors stating whether or not the proposed home office relocation will result in an abandonment of all or part of the community served by the bank's present home office location and, if so, an explanation of how the abandonment promotes the public convenience and advantage;

(7) a written statement signed by the principal executive officer of the bank or a majority of the bank's board of directors stating whether or not, within the 18 month period after the proposed effective date of the relocation, a reduction in banking services presently offered by the bank at its present home office location is anticipated and, if so, an explanation of:

(A)  the anticipated reduction in banking services; and

(B)  how:

(i)  the diminution in services is consistent with the original determination of public necessity for the establishment of the bank at its existing location; or

(ii)  the public convenience and advantage would be promoted by the home office relocation;

(8) a description of any actual, proposed, or contemplated financial involvement in the home office relocation by an officer, director, manager, managing participant, or principal shareholder or participant of the state bank;

(9) evidence that the bank has considered the applicability of federal law governing main office or branch closing or relocation, such as 12 United States Code, §1828(d)(1), and regulations and policy statements issued thereunder; and

(10) other information as the banking commissioner may require.

(d) Public notice.

(1) Within 14 days prior to or 14 days after the initial submission of a written application under subsection (b) of this section, the applicant must publish notice of the submission, as required by §15.5 of this title (relating to Public Notice). Notice must be published in the community where the current home office of the bank is located and in the community of the proposed home office.

(2) The notice must contain the content required by §15.5(b) of this title, the current home office address, and the proposed home office address.

(e) Public comment and protest. For 14 days after publication of the notice or longer if the banking commissioner allows more time for good cause shown, the public may submit written comments or protests regarding an application under subsection (b) of this section. There is no fee or cost for submitting a comment, but persons commenting are not entitled to further notice of or participation in the proceedings. In the event of a properly filed protest, each protesting party has the rights and responsibilities of a protesting party to a branch application under §15.42 of this title.

(f) Certificate of Formation. An amendment to the certificate of formation of the state bank is not required to effect a change in the location of its home office. However, if the certificate of formation is subsequently amended or restated, the resulting certificate of formation must include the bank's current home office address.

Source: The provisions of this §15.41 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective September 13, 1996, 21 TexReg 8455; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective November 7, 2013, 38 TexReg 7687; amended to be effective January 2, 2020, 44 TexReg 8232.

§15.42.  Establishment and Closing of a Branch Office.

(a) Forms. If a state bank wants to establish and operate a branch office in this state or an interstate branch office pursuant to Finance Code, §32.203 and §203.001(a), then a branch application must be completed and filed on forms prescribed by the department. An application for an interstate branch must also provide information regarding applicable host state law and evidence of compliance with the law. Eligible banks may file an expedited application pursuant to §15.3 of this title (relating to Expedited Filings).

(b) Filing. The banking commissioner will issue a written notice as required by §15.4 of this title (relating to Required Information and Abandoned Filings) informing the applicant either that all filing fees have been paid and the application is complete and accepted for filing, or that the application is deficient and specific additional information is required.

(c) Public notice.

(1) Within 14 days prior to or 14 days after the initial submission of its application, the applicant must publish notice of the application, as required by §15.5 of this title (relating to Public Notice), in the community of the proposed branch.

(2) The notice must comply with the content requirement of §15.5(b) of this title and include the proposed location of the branch or service area.

(3)  With respect to an application to establish an interstate branch office pursuant to Finance Code, §32.203 and §203.001(a), the applicant must inform the department of the publication requirements in the host state for the banking commissioner to determine, pursuant to §15.5(e) of this title, whether those requirements satisfy the publication requirements of this subsection.

(d) Public comment and protest. For 14 days after publication of notice, or longer if the banking commissioner allows more time for good cause shown, the public may submit written comments or protests regarding the application. There is no fee or cost for submitting a comment, but persons commenting are not entitled to further notice of or participation in the branch application proceedings. Each protesting party has the rights and responsibilities set forth in subsections (f) and (g) of this section.

(e) Criteria for branch approval: "Significant supervisory or regulatory concerns."

(1)  To determine whether there are significant supervisory concerns regarding a proposed branch, the banking commissioner will consider the financial condition of the applicant, the financial effect of the branch on the applicant, the management abilities of the applicant, and the history and prospects of the applicant and its affiliates regarding fulfillment of responsibilities to regulatory agencies and to the public, including, but not limited to, the responsibility of the applicant to meet the credit needs of its entire community pursuant to the Community Reinvestment Act (CRA), 12 United States Code, §2901 et seq. An application will ordinarily be denied if the applicant is in less than satisfactory financial condition as of its most recent examination or has a less than satisfactory rating regarding compliance with CRA.

(2) To determine whether there are significant regulatory concerns regarding a proposed branch, the banking commissioner will consider the need to maintain a sound banking system. The banking commissioner will follow the principles that the marketplace normally is the best regulator of economic activity, and that healthy competition promotes a sound and more efficient banking system that serves customers well. Accordingly, absent significant supervisory concerns, the general policy of the banking commissioner is to approve applications to establish and operate branches, provided that approval would not otherwise violate the provisions of federal or state law (including any requirements for federal banking agency approval).

(3) In determining whether there are significant supervisory or regulatory concerns as set forth in paragraphs (1) and (2) of this subsection, the banking commissioner will consider written material in the record, including the application, comments on file, protests on file, and any replies of the applicant, the department's files as they relate to the current financial condition of the applicant, and any data that the banking commissioner may properly officially notice. Specifically, the banking commissioner will approve a branch if:

(A) the department's files do not indicate significant regulatory concerns as they relate to the current financial condition of the applicant, including but not limited to its capital, asset quality, management, earnings and liquidity (these files are confidential pursuant to the Finance Code, Chapter 31, Subchapter D, and rules adopted pursuant to the Finance Code, are not open or available to either the applicant or a protesting party or to the public);

(B) the costs of establishing the proposed branch office, including costs of purchasing or leasing the branch site, necessary furnishings, staffing and equipment and the effect of these costs do not significantly affect the operations of the applicant as a whole;

(C) the projected earnings appear reasonable and sufficient to support expenses attributable to the branch without jeopardizing the safety and soundness of the applicant;

(D) the depth and quality of management of the applicant and the proposed branch is sufficient to justify a belief that the bank will operate in compliance with the Finance Code;

(E) the bank has demonstrated compliance with CRA as determined by the rating assigned in the applicant's most recent CRA evaluation;

(F) the applicant has demonstrated a responsiveness to recommendations made in past state and federal bank examination reports and the applicant has generally been operated in substantial compliance with all applicable state and federal laws; and

(G) the banking commissioner, in the exercise of discretion, determines there are no areas of general supervisory concern.

(4) The banking commissioner will direct the department to assemble, evaluate, and make a recommendation regarding all relevant documentation and data as set forth in this subsection within 30 days after the application is complete and accepted for filing, or expiration of the period for filing a comment, protest, response or reply, whichever is the last to occur. If a hearing is granted pursuant to subsection (g) of this section, then the banking commissioner will request the administrative law judge for the Finance Commission of Texas (administrative law judge) to discharge this function through the hearings process. Portions of the assembled record that are confidential pursuant to the Finance Code, Chapter 31, Subchapter D, must be segregated and clearly marked as confidential.

(5) If no hearing is granted, the banking commissioner will either approve, conditionally approve, or deny the application on or before the 30th day after receipt of the department's recommendation.

(f) Protest.

(1) A person may initiate a protest by submitting a written notice of intent to protest the application with the department within the time period allowed by subsection (d) of this section, accompanied by the filing fee required by §15.2 of this title (relating to Filing and Investigation Fees). If the protest is untimely, the filing fee will be returned to the protesting party. If the protest is timely, the department will notify the applicant of the protest and mail or deliver a complete copy of the non-confidential sections of the application to the protesting party on or before the 14th day after receipt of the protest or the application, whichever occurs later.

(2) A protesting party must file a detailed protest responding to each substantive statement contained in the non-confidential sections of the application within 20 days after the protesting party receives the application from the department. The protesting party's response must indicate whether each substantive statement is admitted or denied. The applicant must file a written reply to the protesting party's detailed response on or before the tenth day after the response is filed. Both the protesting party's response and the applicant's reply must be verified by affidavit and certify that a copy was served upon the opposing party. When 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. Comments received by the department and any replies of the applicant to the comments will be made available to the protesting party.

(3) The banking commissioner may extend any time period set forth in this subsection for good cause shown. Good cause includes, but is not limited to, failure of the department to furnish required documentation, forms or information within a reasonable time to permit its effective use by the recipient, or failure of a party to timely serve a filed document on an opposing party. The date a document is actually received by the department is its filing date and not the date it is mailed. Failure to timely file a required document is considered an abandonment of the application or protest, as applicable. Rule 21a, Texas Rules of Civil Procedure, will govern methods and manner of authorized service and the computation of time periods under this subsection.

(g) Hearing.

(1) Pursuant to the Finance Code, §32.203, the banking commissioner may not be compelled to hold a hearing prior to granting or denying approval to establish a branch.

(2) In the exercise of discretion, the banking commissioner may consider granting a hearing on a branch application at the request of either the applicant or a protesting party. The banking commissioner may order a hearing even if no hearing has been requested by the parties. A party requesting a hearing must indicate with specificity the issues involved that cannot be determined on the basis of the record compiled pursuant to subsection (e) of this section and why the issues cannot be so determined. The request for hearing and the banking commissioner's decision with regard to granting a hearing will be made a part of the record.

(3) If a hearing is not requested or if a request for hearing is denied, the banking commissioner will consider the application in the manner set forth in and solely on the basis of the written record established pursuant to subsection (e) of this section.

(4) The administrative law judge will enter appropriate order(s) and conduct a hearing within 30 days after the date a hearing is granted, or as soon thereafter as is reasonably possible, under Chapter 9 of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings) and the Administrative Procedure Act (Texas Government Code, Chapter 2001). The administrative law judge may require submission of written and prefiled testimony. Evidence will not be received on matters not in dispute. The administrative law judge will not consider issues or evidence that are not relevant to the standards set forth in subsection (e) of this section or that are not supported by the application, response, or reply.

(5) A proposal for decision, exceptions and replies to the proposal for decision, the final decision of the banking commissioner, and motions for rehearing are governed by Chapter 9 of this title.

(h) Beginning operations. Any activity approved pursuant to this section must commence within 18 months from the date of approval unless the banking commissioner extends that date in writing. Approval will automatically expire 18 months from the date of approval if no extension is granted.

(i) Emergency branches. The banking commissioner may authorize banks to establish temporary branch locations in the event of an emergency as defined by the Finance Code, §37.001. The procedures set forth in subsections (c), (d), (f) and (g) of this section do not apply to:

(1)  situations in which the banking commissioner has authorized a temporary branch location because of an emergency; or

(2)  branch applications made as a part of a transaction for the purpose of assuming all or a portion of the assets and liabilities of any financial institution deemed by the banking commissioner to be in hazardous condition.

(j) Branch relocation. A bank may relocate a branch within a one-mile radius by submitting a completed written notice on a form prescribed by the banking commissioner and tendering the required filing fee pursuant to §15.2 of this title. A bank may relocate the branch beginning on the 31st day after the date the banking commissioner receives the bank's notice or immediately after the banking commissioner notifies the bank in writing that the required notice is complete.

(k) Closing a branch. Before closing an approved branch, a bank must comply with the notice requirements of federal law, and provide the department with a copy of the branch closing notice filed with the appropriate federal banking regulator simultaneously with its filing. Once a bank closes a branch the bank cannot reopen the branch except upon application for a new branch in compliance with this section.

Source: The provisions of this §15.42 adopted to be effective January 5, 1996, 20 TexReg 10999; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective May 5, 2016, 41 TexReg 3099; amended to be effective January 2, 2020, 44 TexReg 8232.

§15.43.  Establishment and Operation of a Remote Service Unit.

(a) "Remote service unit" means an automated facility, operated by a customer of a bank, that conducts banking functions such as receiving deposits, paying withdrawals, or lending money, and includes an unmanned or automated teller machine, an automated loan machine, and an automated device for receiving deposits. A remote service unit may be equipped with a telephone or video device that allows contact with bank personnel.

(b) A remote service unit is not a branch within the meaning of Finance Code, §31.002(a)(8). A remote service unit established, operated, and maintained by a state bank is not subject to licensing, registration, or prior regulatory approval.

Source:  The provisions of this §15.43 adopted to be effective July 5, 2007, 32 TexReg 3977.

§15.44.  Establishment and Operation of a Center of Monetary Education for Texans.

(a)  "Center of Monetary Education for Texans" (COMET) means a financial education program in which a state bank participates and provides services such as receiving deposits, paying withdrawals, or lending money.

(b)  A COMET is not a branch within the meaning of Finance Code §31.002(a)(8), nor is it subject to licensing, registration, or prior regulatory approval, so long as it meets the following conditions:

(1)  The service or services are provided on school premises, or a facility used by the school;

(2)  The service or services are provided at the discretion of the school;

(3)  The principal purpose of each program is financial education.  For example, the principal purpose of a program would be considered to be financial education if the program is designed to teach students the principles of personal financial management, banking operations, or the benefits of saving for the future, and is not designed for the purpose of profit-making; and

(4)  The program is conducted in a manner that is consistent with safe and sound banking practices and complies with applicable law.

(c)  A state bank shall give the banking commissioner 30 days written notice before it begins providing services at a COMET, except that the banking commissioner may waive or shorten the notice period if the banking commissioner does not have a significant supervisory or regulatory concern regarding the bank or its planned COMET.  The written notice must include the name of the school and the physical address of the planned COMET, a list of the specific activities to be performed at the planned COMET, the anticipated date for the opening of the COMET, and other information which the banking commissioner may reasonably request.

Source:  The provisions of this §15.44 adopted to be effective November 6, 2008, 33 TexReg 8906.

Subchapter D. Trust Company Applications

§15.61.  [Repealed]

§15.62.  [Repealed]

Subchapter E. Change of Control Applications

§15.81.  Application for Acquisition or Change of Control of State Bank.

(a) Definitions. Words and terms used in this chapter that are defined in the Finance Code, Title 3, Subtitle A, have the same meanings as defined in the Finance Code.

(b) General. Without the prior written consent of the banking commissioner, a person or entity may not, directly or indirectly, acquire a legal or beneficial interest in voting securities of a state bank or a corporation or other entity owning voting securities of a state bank if, after the acquisition, the person or entity would control the state bank. Except as otherwise provided in this section, an application must be filed with the banking commissioner for review and consideration of the proposed transaction.

(c) Form of application. The applicant must submit a fully completed, verified application in a form prescribed by the banking commissioner and simultaneously tender the required filing fee pursuant to §15.2 of this title (relating to Filing and Investigation Fees). The Interagency Notice of Change of Control and the Interagency Biographical and Financial Report may be submitted in lieu of the commissioner prescribed forms if they are accompanied by the executed and notarized signature pages of the commissioner prescribed forms. The application must, except to the extent expressly waived in writing by the banking commissioner, disclose:

(1) the identity, biographical data, business background, and experience relating to banking matters, and a current statement of financial condition, a statement of changes in net worth and a statement of cash flows of each person by whom, or on whose behalf, the acquisition is to be made and by each person acting in concert with others seeking to acquire voting securities subject to the Finance Code and to this section. Financial statements will be considered current if audited and dated within 180 days of the date of the application or will be considered current if unaudited and dated within 90 days of the date of the application. All financial statements must be accompanied by an affidavit of no material change dated as of the date of application;

(2) a completed authorization to release employment, financial, credit, fingerprint information and criminal history records to the department;

(3) a completed confirmation inquiry form;

(4) the identity of each entity other than a natural person seeking to acquire control or working in concert with others to acquire control of a state bank or bank holding company and a copy of the entity's most recent audited financial statement. Financial statements will be considered current if audited and dated within 180 days of the date of the application or will be considered current if unaudited and dated within 90 days of the date of the application. All financial statements must be accompanied by an affidavit of no material change dated as of the date of application;

(5) a description of all material, pending or adjudicated legal or administrative proceedings in which each acquiring person or entity is or was a party. A material legal proceeding includes a proceeding in which the person or entity has been charged with, cited for, or convicted under a state or federal law relating to banking or other financial institutions, securities or financial instrument reporting, or a felony or crime involving moral turpitude under the laws of a state, the United States, or another country. A material legal proceeding also includes a proceeding that resulted in a material unsatisfied judgment, or may result in a judgment, against the acquiring person or entity and this loss contingency must be disclosed in the financial statements of the acquiring person or entity under generally accepted accounting principles, or is otherwise material. A material administrative proceeding includes a proceeding in which the person or entity is or has been subject to a cease and desist, removal, enforcement, or other order, including an order of supervision or conservatorship issued by a state, federal, or foreign regulatory agency;

(6) the terms and conditions of the proposed acquisition or change of control and the manner in which the acquisition or change of control is to be made;

(7) the identity, source, and amount of the funds or other consideration used or to be used in making the acquisition or change of control;

(8) if a portion of the funds or other consideration to be used in making the acquisition has been borrowed or is to be borrowed or otherwise obtained for the purpose of making the acquisition, a complete description of the transaction, the names of the parties to the transaction, and a summary of all arrangements, agreements, or understandings with the parties including terms of repayment;

(9) the applicant's current or proposed business or strategic plan including amendments to a current plan;

(10) plans or proposals to liquidate the state bank or bank holding company, to sell its assets or merge it with another bank or holding company, or to make other major changes in its business, corporate structure, or management;

(11) plans or proposals to change officers and directors of the state bank or bank holding company and the related bank or financial institution management experience of proposed or current officers and directors;

(12) the terms and conditions of an offer, invitation, agreement, or arrangement under which a voting security will be acquired and any contract affecting the security or its financing after it is acquired;

(13) pro forma financial statements with projections indicating whether the acquired or controlled state bank or bank holding company will be adequately capitalized for a period of not less than two years from the date of acquisition; and

(14) other information that the banking commissioner, in the exercise of discretion, considers necessary to make an informed decision to approve or reject the proposed acquisition. The applicant must supply all material information necessary for the banking commissioner to make a fully informed decision on the application.

(d) Public notice. Not later than 21 days from the date the banking commissioner notifies the applicant of acceptance of the initial application, the applicant must publish notice as required by the Finance Code, §33.002(d), and §15.5 of this title (relating to Public Notice) in the county where the state bank's or bank holding company's home office is located. One publication under this subsection is adequate unless the banking commissioner expressly requires additional notice.

(e) Confidentiality. Information obtained by the banking commissioner under this section is confidential and may not be disclosed by the banking commissioner or an officer or employee of the department, subject only to disclosure as may be permitted by the Finance Code, §§31.301-31.308 or 33.002(d), or by §3.111 of this title (relating to Confidential Information).

(f) Grandfather clause. A person or entity considered to be in control solely as a result of changed standards in the Texas Banking Act as effective September 1, 1995 (codified as Finance Code, Title 3, Subtitle A, effective September 1, 1997), is exempt from filing an application under this section as long as the person or entity was in compliance with applicable law immediately prior to September 1, 1995, and has not acquired additional shares of voting securities on or after September 1, 1995. This subsection specifically applies to a principal shareholder or principal participant of a state bank or bank holding company that directly or indirectly owns or has the power to vote a greater percentage of voting securities of the state bank or holding company than another shareholder or participant.

(g) Exemptions. In addition to the acquisitions specifically exempted pursuant to the Finance Code, §33.005, these involuntary acquisitions of control do not require prior written approval of the banking commissioner pursuant to the Finance Code, §33.001:

(1) the inadvertent acquisition of control of a state bank or bank holding company by a shareholder as a result of a stock redemption or repurchase by the issuer if the potential controlling shareholder or participant of a state bank or bank holding company did not vote or have any direct or indirect input into the issuer's decision to repurchase or redeem the voting securities;

(2) the acquisition and control by a qualified employee stock ownership plan (ESOP) of less than 25% of voting securities of a state bank or bank holding company unless an officer, director, or principal shareholder or participant directly or indirectly controls the voting securities held by the ESOP, in which event an application for acquisition of control must be filed by the officer, director or principal shareholder or participant, if as a result that person would control over 25% of the voting securities;

(3) the acquisition of control of a state bank as a result of a shareholder receiving proportionate voting securities in a state bank arising from the liquidation of a bank holding company;

(4) the acquisition of additional shares of voting securities of a state bank or bank holding company by virtue of a pro-rata stock dividend or stock split not resulting in increased ownership percentage;

(5) the acquisition of control of a state bank or bank holding company as a result of a gift made in good faith, provided:

(A) the donee is related to the donor within the second degree of consanguinity or affinity;

(B) neither the donor nor donee is under an enforcement order; and

(C) notice of the gift is given to the banking commissioner pursuant to subsection (h) of this section; and

(6) the acquisition of control of a state bank or bank holding company as a result of the transfer of voting securities by gift to a limited partnership or other estate planning vehicle, if determined by the banking commissioner to have an equivalent effect, if:

(A)  the limited partnership owns no other voting securities other than the securities transferred;

(B)  the donor is the sole general partner of the limited partnership who retains sole voting authority over the voting securities;

(C)  neither the donor nor donee is under an enforcement order; and

(D)  notice of the gift is given to the banking commissioner pursuant to subsection (h) of this section.

(h) Notices in lieu of filing. If an applicant is not required to file an application because of an exemption under the Finance Code, §33.005, or subsection (g) of this section, but is required to file an application with a federal regulatory authority or a regulatory authority of another state, a copy of that application must be filed with the banking commissioner within seven days of the date of filing it with the federal or state agency. A notice in lieu of filing is required of a person claiming an exemption under the Finance Code, §33.005(1) or (3), or subsection (g) (5) or (6) of this section. This notice must be filed before the securities acquired are voted and must be accompanied by a completed authorization pursuant to subsection (c)(2) of this section. No filing fees are required for notices filed under this section; however, if the banking commissioner determines that an application is required, the appropriate filing fee pursuant to §15.2 of this title is required.

(i) Approval. Automatic approval; conditional approval. If an application filed under this section is not approved by the banking commissioner or is not set for hearing on or before the 60th day after the date notice is published, the transaction may be consummated. Before the expiration of the initial 60-day period, the banking commissioner may give the applicant written notice that the application is approved; upon receipt of the notice, the applicant may immediately consummate the transaction. Before the expiration of the initial 60-day period, the banking commissioner may also give an applicant written notice that the application is conditionally approved subject to certain conditions. The applicant must enter into a written agreement with the banking commissioner concerning these conditions on or before the 30th day after the date the applicant receives notification of conditional approval. An agreement entered into by the applicant and the banking commissioner concerning conditional approval is enforceable against the applicant and the bank and is considered for all purposes an agreement under the provisions of the Finance Code. If an applicant receives conditional approval, but does not enter into an agreement with the banking commissioner as required by this subsection, the banking commissioner will set the matter for hearing.

(j) Consummation of an acquisition or change of control transaction. The acquisition or change of control of the voting securities must be consummated as proposed in the application, in the agreement concerning conditional approval as provided in subsection (i) of this section, or as provided in a final order pursuant to subsection (m) of this section. A transaction approved or conditionally approved under this section must be consummated within 12 months after the date of approval by the banking commissioner unless an extension is granted in writing. Until a transaction is consummated, the banking commissioner reserves the right to alter, suspend or withdraw approval if an interim development warrants it.

(k) Notification by banking commissioner. A notification by the banking commissioner under this section may be sent by registered or certified mail, return receipt requested, and is considered delivered upon deposit in the United States mail postage prepaid, return receipt requested, addressed to the applicant at the address furnished in the application.

(l) Abandoned filing. The banking commissioner may determine an application to be abandoned pursuant to §15.4 of this title (relating to Required Information and Abandoned Filings).

(m) Hearing on application. The banking commissioner will set an application for hearing on or before the 60th day after notice is published as required by the Finance Code, §33.002(d), and subsection (i) of this section. The notice of hearing must comply with Government Code, §2001.051, and will state that the purpose of the hearing is to give the applicant an opportunity to show that it has met all required qualifications for the banking commissioner's approval of the acquisition or change of control application. The applicant has the burden of showing all required qualifications by a preponderance of evidence. The hearing must comply with Government Code, Chapter 2001 (the Administrative Procedure Act). After the hearing, the banking commissioner will grant or deny the application based solely upon the evidence presented at the hearing. An applicant may not appeal the denial of an application or conditional approval of an application until a final order is issued. If after a hearing is held, the banking commissioner enters an order denying the application, and the order has become final, the applicant may appeal the final order by filing a petition for judicial review under the substantial evidence rule in the District Court of Travis County, Texas, and not elsewhere, as provided by the Finance Code, §33.004, and the Government Code, Chapter 2001.

Source: The provisions of this §15.81 adopted to be effective July 12, 1996, 21 TexReg 6073; amended to be effective November 13, 1997, 22 TexReg 10955; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective January 4, 2018, 42 TexReg 7580; amended to be effective January 2, 2020, 44 TexReg 8232.

Subchapter F.  Applications for Merger, Conversion, and Purchase or Sale of Assets

§15.101.  Definitions.

(a) Words and terms used in this subchapter that are defined in the Finance Code, Title 3, Subtitle A, have the same meanings as defined in the Finance Code.

(b) When these words and terms are used in this subchapter they will have these meanings, unless the context clearly indicates otherwise.

(1) Annual report-Formal financial statements and accompanying narrative of management issued yearly for the benefit of shareholders and other interested parties.

(2) Chartering agency-A government authority that has chartering jurisdiction over an entity involved in a transaction under this subchapter.

(3) Conversion-The conversion of a state bank into a successor form of financial institution pursuant to the Finance Code, §32.501, or the conversion of a financial institution into a state bank pursuant to the Finance Code, §32.502.

(4) Corporation or domestic corporation-A corporation for profit subject to the provisions of the Texas Business Organizations Code, except a foreign corporation.

(5) CRA-The federal Community Reinvestment Act, 12 United States Code, §§2901 et seq.

(6) Current financial statements- Audited financial statements dated as of a date not more than 180 days prior to the date of submission of an application, or unaudited financial statements dated as of a date not more than 90 days prior to the date of submission of an application.

(7) Financial institution-An entity defined as a financial institution under Finance Code §201.101(1)(A)-(D).

(8) Foreign corporation-A corporation for profit organized under laws other than the laws of this state.

(9) Low-quality asset-An asset as defined in 12 United States Code, §371c(b)(10), currently an asset that falls in any one or more of these categories:

(A) an asset classified as "substandard," "doubtful," or "loss," or treated as "other loans especially mentioned" in the most recent report of examination or inspection of an affiliate prepared by either a federal or state supervisory agency;

(B) an asset in a nonaccrual status;

(C) an asset on which principal or interest payments are more than 30 days past due; or

(D) an asset whose terms have been renegotiated or compromised due to the deteriorating financial condition of the obligor.

(10) Material administrative proceeding-A past or pending proceeding by a state, federal, or foreign regulatory agency against the applicant or other person involved in a transaction under this subchapter that resulted in or could result in the issuance of a cease and desist, removal, enforcement action, determination letter or other order, including an order of supervision or conservatorship; excluding, however, a past proceeding that resulted in an order, other than a removal order, that has been satisfied or otherwise terminated more than five years prior to the date the application or notice requesting the information is submitted.

(11) Material legal proceeding-

(A) a past or pending criminal proceeding against the applicant or other person involved in a transaction under this subchapter that resulted or may result in conviction of the applicant or other person of a crime under a state or federal law or the law of a foreign country relating to banks, other financial institutions, securities, financial instrument reporting, or another crime involving moral turpitude; or

(B) a past or pending proceeding that has or may result in a judgment against the applicant or other person or entity involved in a transaction under this subchapter and the loss contingency must be disclosed in the financial statements of the entity under generally accepted accounting principles, or is otherwise material.

(12) Merger-A transaction that is:

(A) the division of a financial institution into two or more new financial institutions or into a surviving financial institution or one or more new financial institutions, domestic or foreign corporations, or other entities, at least one of which is a state bank or is not a financial institution; or

(B) the combination of one or more financial institutions with one or more financial institutions, domestic or foreign corporations, or other entities, at least one of which is a state bank, resulting in:

(i) one or more surviving financial institutions, domestic or foreign corporations, or other entities;

(ii) the creation of one or more new financial institutions, domestic or foreign corporations, or other entities; or

(iii) one or more surviving financial institutions, domestic or foreign corporations, or other entities and the creation of one or more new financial institutions, domestic or foreign corporations, or other entities; or

(C) another transaction involving a financial institution or other entity, at least one of which is a state bank, which is considered a merger under the Texas Business Organizations Code.

(D)  an interstate merger transaction as defined in Finance Code, §201.002(a)(27).

(13) Other entity-An entity, whether or not organized for profit, other than a financial institution or a domestic or foreign corporation, including without limitation a not-for-profit corporation, limited or general partnership, joint venture, joint stock company, cooperative, association, insurance company, trust company, or other legal entity organized pursuant to the laws of this state or another state or country to the extent the laws or the constituent documents of that entity, consistent with the laws, permit that entity to enter into a merger or share exchange subject to this subchapter.

(14) Principal executive officer-An officer primarily responsible for the execution of board policies and operation of the bank in accordance with the Finance Code, §33.106.

(15) Purchase of assets-The purchase other than in the ordinary course of business of all or substantially all of the assets of a state bank or another entity. This may include an interstate merger transaction as defined in Finance Code, §201.002(a)(27)(B).

(16) Regulatory restriction-A memorandum of understanding, determination letter, notice of determination, order to cease and desist, or other state or federal administrative enforcement order issued by a state or federal banking regulatory agency, or another limitation imposed on a financial institution by a state or federal banking regulatory agency that restricts its ability to act without authorization from the regulatory agency imposing the condition.

(17) Resulting state bank-A state bank subject to the provisions of this subchapter that is a surviving entity in a merger.

(18) Sale of assets-The sale, lease, exchange, or other disposition of substantially all of the assets of a state bank other than in the ordinary course of business. This may include an interstate merger transaction as defined in Finance Code, §201.002(a)(27)(B).

(19) Share exchange-A transaction by which one or more financial institutions, domestic or foreign corporations, or other entities acquire all of the outstanding shares of one or more classes or series of one or more state banks under the authority of the Finance Code, §32.008, and the Texas Business Organizations Code.

(20) Substantially all of the assets-More than 50% of the assets or assets sufficient to materially impact the net earnings of a state bank involved in a transaction under this subchapter.

(21) Verified-Documents submitted by the applicant that have been attested to as true and correct. Attested documents filed pursuant to this subchapter are not required to be notarized.

Source: The provisions of this §15.101 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779.

§15.102.  General.

Without the prior written consent of the banking commissioner, a state bank may not consummate a merger, conversion, sale of assets, purchase of assets, or share exchange. Except as otherwise provided in the Finance Code, Chapter 32, Subchapters D, E, and F, or in this subchapter, an application must be filed with the banking commissioner for review and consideration of the proposed transaction.

Source: The provisions of this §15.102 adopted to be effective September 15, 1997, 22 TexReg 8948.

§15.103.  Expedited Filings.

(a) A financial institution that would be an eligible bank as defined in §15.1 of this title (relating to Definitions) if it was a state bank may file an expedited filing in lieu of an application required under §15.104 of this title (relating to Application for Merger or Share Exchange), §15.105 of this title (relating to Application for Authority to Purchase Assets of Another Financial Institution), or §15.108 of this title (relating to Conversion of a Financial Institution into a State Bank), and simultaneously tender the required filing fee pursuant to §15.2 of this title (relating to Filing and Investigation Fees).

(b) An expedited filing consists of a letter application including, except to the extent waived by the banking commissioner, these items:

(1) a summary of the transaction;

(2) a current pro forma balance sheet and income statement for all parties to the transaction, with adjustments, reflecting the proposed transaction as of the most recent quarter ended immediately prior to the filing of the application, demonstrating that each resulting state bank is well capitalized as defined in Section 38, Federal Deposit Insurance Act, 12 USC §1831o;

(3)  a completed Worksheet to Determine Eligibility form as prescribed by the commissioner;

(4)  a completed Worksheet for Expedited Filings form as prescribed by the commissioner;

(5) an executed opinion of counsel conforming to the requirements of the section of this subchapter that would apply had the applicant not filed an expedited filing;

(6) copies of all other required regulatory notices or filings submitted concerning the transaction; and

(7) a copy of the public notice published in conformity with the section of this subchapter that would apply had the applicant not filed an expedited filing.

(c) The banking commissioner must notify the applicant on or before a date that is 15 days after receipt of the application if expedited filing treatment is not available under this section for any reason. Notification must be in writing and must indicate the reason expedited treatment is not available. Notification is effective when mailed by the banking commissioner and is not subject to appeal.

(d) The banking commissioner, in the exercise of discretion, may withdraw an application from expedited processing or may deny expedited filing treatment to an otherwise eligible applicant if the banking commissioner finds that the application involves one or more of these issues:

(1) the proposed transaction involves significant policy, supervisory, or legal issues;

(2) approval of the proposed transaction is contingent on additional statutory or regulatory approval by the banking commissioner or another state or federal regulatory agency;

(3) the proposed transaction contemplates a resulting entity that is not a financial institution;

(4) the proposed transaction involves a financial institution or other entity that is not domiciled in Texas;

(5) the proposed transaction would cause the assets of a resulting state bank to increase more than:

(A) 100% if it had total assets of one billion dollars or less prior to the transaction; or

(B) 35% if it had total assets of more than one billion dollars prior to the proposed transaction;

(6) the proposed transaction involves a state bank that has experienced, since the last commercial examination by a state or federal regulatory agency, asset growth, through acquisition or otherwise, greater than:

(A) 100% if it had total assets of one billion dollars or less at the last examination; or

(B) 35% if it had total assets of more than one billion dollars at the last examination;

(7)  the proposed transaction involves a resulting state bank that would not be well capitalized as defined in Section 38, Federal Deposit Insurance Act, 12 USC §1831o;

(8)  the proposed transaction involves an issue of regulatory concern as determined by the banking commissioner in the exercise of discretion; or

(9)  the banking commissioner determines that a conversion examination is necessary for financial institutions converting into a state bank.

(e) The banking commissioner must approve or deny an expedited filing on or before a date that is 30 days after the date the expedited filing is accepted for filing pursuant to §15.4 of this title (relating to Required Information and Abandoned Filings). The banking commissioner may, in the exercise of discretion, before the expiration of the period for decision, give the applicant written notice that the banking commissioner will convene a hearing to obtain evidence related to the application, and the decision will thereafter be made in accordance with §15.113 of this title (relating to Approval; Conditional Approval; Denial of Application; Hearings).

(f) The applicant must supply all material information necessary for the banking commissioner to make a fully informed decision on the expedited filing.

Source: The provisions of this §15.103 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective January 2, 2020, 44 TexReg 8232; amended to be effective March 12, 2024, 49 TexReg 1457.

§15.104.  Application for Merger or Share Exchange.

(a) Scope. This section governs an application for merger or share exchange pursuant to the Finance Code, §§32.301-32.303 and 32.008, or §203.001(b). This section does not apply to a merger, reorganization, or conversion of a state bank into another form of financial institution pursuant to the Finance Code, §32.501, governed by §15.107 of this title (relating to Notice of Merger, Reorganization, or Conversion of a State Bank into Another Form of Financial Institution).

(b) Form of application. The applicant must submit a fully completed, verified application on a form prescribed by the banking commissioner and simultaneously tender the required filing fee pursuant to §15.2 of this title (relating to Filing and Investigation Fees). The Interagency Bank Merger Act application may be used in lieu of the commissioner prescribed form if it is accompanied by the signature page and supplemental page of the commissioner prescribed form. The application must, except to the extent waived by the banking commissioner, include:

(1) a summary of the proposed transaction;

(2) a copy of all agreements related to the proposed transaction executed by an authorized representative of each party to the merger or share exchange;

(3) certificate and plan of merger or share exchange in accordance with the Texas Business Organizations Code, which must include:

(A) a current draft of the certificate of merger or share exchange, and additional copies equal to the number of surviving, new, or acquired entities, executed and acknowledged by an authorized officer for each party to the merger or share exchange;

(B) the plan of merger or share exchange;

(C) the restated certificate of formation of each resulting state bank;

(D) the restated certificate of formation, or other constitutive documents, of each surviving entity other than the resulting state bank;

(E) the certificate of formation, or other constitutive documents, of each new resulting entity;

(F) if a party to a merger is an entity required to file documents with the Texas secretary of state before the transaction can be legally consummated, a provision in the certificate of merger conditioning the merger upon the approval of the banking commissioner, containing wording substantially as follows, as applicable: This merger will become effective upon the final approval and filing of the certificate of merger by the Secretary of State of Texas and with the Banking Commissioner of Texas which must be on or before ________ (date), which is the 90th day after the date of filing of the certificate of merger with the Secretary of State;

(4) for each party to the merger or share exchange, a certified copy of those portions of the minutes of board meetings and shareholder or participant meetings at which action was taken regarding approval of the merger or share exchange, or a certificate of an officer verifying the action taken by the board of directors and the shareholders or participants approving the merger or share exchange, or an explanation of the basis for concluding that this action was not required;

(5) for each resulting state bank, an assessment of its future prospects, proposed officers and directors, and proposed branches and other locations;

(6) an assessment of the current regulatory and financial condition of each party to the transaction;

(7) if a merger or share exchange will change the existing CRA delineated community of a resulting state bank, a copy of a map depicting the proposed delineated community of the resulting state bank;

(8) a copy of current financial statements for each entity involved in the proposed transaction, accompanied by an affidavit of no material change dated no earlier than 30 days prior to the date of submission of the application;

(9) a copy of the latest annual report for each financial institution and bank holding company involved in the proposed transaction;

(10) a copy of that portion of the most recent watch list for each financial institution involved in the proposed transaction that identifies low-quality assets;

(11) a description of the due diligence review conducted by or for a state bank that is a party to the transaction and a summary of findings;

(12) a description of all material legal or administrative proceedings involving any party to the merger or share exchange;

(13) an opinion of legal counsel that conforms with §15.109 of this title (relating to Opinion of Legal Counsel), concluding:

(A) the merger or share exchange has been duly authorized by the board and shareholders or participants of each participating state bank in accordance with the Finance Code, §32.301, and the Texas Business Organizations Code;

(B) the merger or share exchange will not cause or result in a material violation of the laws of this state relative to the organization and operation of state banks;

(C) all deposit and other liabilities of every state bank that is a party to the merger or share exchange will be discharged or otherwise assumed or retained by a financial institution that is authorized by law to do so;

(D) each surviving, new, or acquiring entity that is not a financial institution will not be engaged in the unauthorized business of banking, and each resulting state bank will not be engaged in a business other than banking or a business incidental to banking; and

(E) all conditions with respect to the merger or share exchange that have been imposed by the banking commissioner have been satisfied or otherwise resolved or, to the best knowledge of legal counsel, no conditions have been imposed;

(14) a copy of each filing or application regarding the proposed merger or share exchange required by another governmental authority, complete with all related attachments, exhibits, and correspondence;

(15) a current pro forma balance sheet and income statement for each party to the transaction, with adjustments, reflecting the proposed merger or share exchange as of the most recent quarter ended immediately prior to the filing of the application;

(16) a copy of the strategic plan that complies with the department's Memorandum 1009, including projections of the balance sheet and income statement of each resulting state bank as of the quarter ending one year from the date of the pro forma financial statement required by paragraph (15) of this subsection;

(17) an explanation of compliance with or nonapplicability of provisions of governing law relating to rights of dissenting shareholders or participants to the merger or share exchange;

(18) a copy of all securities offering documents, proxy statements, or other disclosure materials delivered or to be delivered to shareholders or participants of a party concerning the merger or share exchange;

(19) an explanation of the manner and basis of converting or exchanging any of the shares or other evidences of ownership of an entity that is a party to the merger or share exchange into shares, obligations, evidences of ownership, rights to purchase securities, or other securities of one or more of the surviving, acquiring, or new entities, into cash or other property, including shares, obligations, evidences of ownership, rights to purchase securities, or other securities of another person or entity, or into a combination of the foregoing;

(20) for antitrust purposes, an analysis of the anticipated competitive effect of the proposed transaction in the affected markets and a statement of the basis of the analysis of the competitive effects, or alternatively, a copy of the analysis of competitive effects of the proposed transaction addressed in the companion federal regulatory agency application;

(21) other information that the banking commissioner, in the exercise of discretion, considers necessary to make an informed decision to approve or deny the proposed merger or share exchange; and

(22)  in addition to all other requirements of this subsection, with respect to an interstate merger transaction:

(A)  any additional opinions and information the applicant, by contacting the department, determines the banking commissioner requires; and

(B)  information regarding applicable host state law and evidence of compliance with the law.

(c) Applicant's duty to disclose. The applicant must supply all material information necessary for the banking commissioner to make a fully informed decision on the application.

(d) Public notice. Within 14 days prior to or 14 days after submission of the initial application, the applicant must publish notice in accordance with the requirements of §15.5 of this title (relating to Public Notice) in the specified communities where the home office of the applicant, the target entity, and the resulting bank are or will be located. With respect to an interstate merger transaction, the applicant must inform the department of the publication requirements in the host state for the banking commissioner to determine, pursuant to §15.5(e) of this title, whether those requirements satisfy the publication requirements of this subsection.

(e) Approval by the banking commissioner and filings with a chartering agency.

(1) The banking commissioner will approve a merger or share exchange only if the application indicates substantial compliance with all conditions of the Finance Code, §32.302(b) and §32.304.

(2) If a party is required to file certificate of merger or exchange with its chartering agency after acceptance for filing pursuant to §15.4(b) of this title (relating to Required Information and Abandoned Filings), an applicant for merger or share exchange must file the original certificate of merger or exchange as certified by the chartering agency with the banking commissioner.

(3) After approval of an application under this section, the banking commissioner will accept the certificate of merger or exchange previously filed with the chartering agency (if applicable), issue a certificate of merger or exchange, and perform the duties required by the Finance Code, §32.302(c). With respect to a transaction that requires filing with the Texas secretary of state, if the banking commissioner does not approve the certificate of merger or exchange on or before the 90th day after the filing of the certificate of merger or exchange with the Texas secretary of state, the applicant must refile the certificate of merger or exchange with both the Texas secretary of state and with the banking commissioner.

(4) After issuance of the certificate of merger or exchange by the banking commissioner, the applicant must file a statement with the chartering authority, if applicable, certifying as to the date that each future event upon which the effectiveness of the merger was conditioned has been satisfied.

(5) The date of issuance of the certificate of merger by the banking commissioner is the date of approval unless the merger agreement provides for a later effective date approved by the banking commissioner pursuant to the Finance Code, §32.302(d).

Source: The provisions of this §15.104 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective November 7, 2013, 38 TexReg 7687; amended to be effective January 2, 2020, 44 TexReg 8232.

§15.105.  Application for Authority to Purchase Assets of Another Financial Institution.

(a) Scope. This section governs an application for the purchase of assets pursuant to the Finance Code, §§32.001(c) and 32.401-32.404 6 or Finance Code §203.001(b).

(b) Form of application. The applicant must submit a fully completed, verified application on a form prescribed by the banking commissioner and simultaneously tender the required filing fee pursuant to §15.2 of this title (relating to Filing and Investigation Fees and Cost Deposits). The application must, except to the extent waived by the banking commissioner, include:

(1) a summary of the proposed transaction, including a description of the types and total dollar amounts of liabilities and obligations expressly assumed;

(2) a copy of all agreements related to the proposed transaction executed by an authorized representative of each party to the transaction;

(3) for each party to the transaction, a certified copy of those portions of the minutes of board meetings and shareholder or participant meetings at which action was taken regarding approval of the transaction, or a certificate of an officer verifying the action taken by the board of directors and the shareholders or participants approving the transaction, or an explanation of the basis for concluding that this action was not required;

(4) an assessment of the applicant's future prospects, proposed officers and directors, and proposed branches and other locations;

(5) an assessment of the current regulatory and financial condition of each party to the transaction;

(6) if the proposed transaction will change the existing CRA delineated community of the applicant, a copy of the proposed CRA map depicting the proposed delineated community of the applicant;

(7) a copy of current financial statements for each entity involved in the proposed transaction, accompanied by an affidavit of no material change dated no earlier than 30 days prior to the date of submission of the application;

(8) a copy of the latest annual report for each financial institution and bank holding company involved in the proposed transaction;

(9) a copy of that portion of the most recent watch list for the applicant and that portion of the watch list of the selling party that identifies low-quality assets being acquired or liabilities being assumed;

(10) a description of the due diligence review conducted by or for the applicant and a summary of findings;

(11) a description of all material legal or administrative proceedings involving the applicant;

(12) an opinion of legal counsel that conforms with §15.109 of this title (relating to Opinion of Legal Counsel), concluding:

(A) the transaction will not cause or result in a material violation of the laws of this state relative to the organization and operation of state banks;

(B) the liabilities and obligations of the purchasing bank will be limited to those expressly assumed under the purchase agreement, unless otherwise required by law; and

(C) all conditions with respect to the transaction imposed by the banking commissioner have been satisfied or otherwise resolved or, to the best knowledge of legal counsel, no conditions have been imposed;

(13) a copy of each filing regarding the proposed transaction that is required by another governmental authority, complete with all related attachments, exhibits, and correspondence;

(14) a current pro forma balance sheet and income statement of the applicant, with adjustments, reflecting the proposed transaction as of the most recent quarter ended immediately prior to the filing of the application;

(15) a copy of the applicant's strategic plan that complies with the department's Memorandum 1009, including projections of the balance sheet and income statement of the applicant as of the quarter ending one year from the date of its current pro forma financial statement required in accordance with paragraph (14) of this subsection;

(16) an explanation of the manner and basis of valuing any of the shares or other evidences of ownership of an entity that is to constitute part of the consideration used to acquire assets;

(17) the location of each new branch of the applicant that will result from the transaction;

(18) for antitrust purposes, an analysis of the anticipated competitive effect of the proposed transaction in the affected markets and a statement of the basis of the analysis of the competitive effects, or alternatively, a copy of the analysis of competitive effects of the proposed transaction addressed in the companion federal regulatory agency application, if applicable;

(19) other information that the banking commissioner, in the exercise of discretion, considers necessary to make an informed decision to approve or deny the proposed transaction; and

(20)  in addition to all other requirements of this subsection, with respect to an interstate merger transaction:

(A)  any additional opinions and information the applicant, by contacting the department, determines the banking commissioner requires; and

(B)  information regarding applicable host state law and evidence of compliance with the law.

(c) Applicant's duty to disclose. The applicant must supply all material information necessary for the banking commissioner to make a fully informed decision on the application.

(d) Public notice. Within 14 days prior to or 14 days after submission of the initial application, the applicant must publish notice in accordance with the requirements of §15.5 of this title (relating to Public Notice) in the specified communities where the home offices of the applicant and other financial institutions involved in the transaction are located. With respect to an interstate merger transaction, the applicant must inform the department of the publication requirements in the host state for the banking commissioner to determine, pursuant to §15.5(e) of this title, whether those requirements satisfy the publication requirements of this subsection.

Source: The provisions of this §15.105 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective January 2, 2020, 44 TexReg 8232.

§15.106.  Application for Authority to Sell Assets.

(a) Scope. This section governs an application for the sale of assets pursuant to the Finance Code, §32.405. A state bank that seeks to continue engaging in the business of banking after selling assets for a sales price exceeding an amount equal to three times the bank's unimpaired capital and surplus, pursuant to Finance Code, §32.405(a), may not consummate the sale of assets without the written approval of the banking commissioner. A state bank seeking to sell all or substantially all of its assets after obtaining approval of its shareholders must submit a plan of voluntary dissolution and liquidation to the banking commissioner for approval under the Finance Code, §32.405(c) and §§36.101 et seq, and the transaction is outside the scope of this section. A sale of assets requiring shareholder approval in which all liabilities of the seller are assumed by a depository institution, which is in substance and intent a merger, is considered to be a merger subject to §15.104 of this title (relating to Application for Merger or Share Exchange) or §15.107 of this title (relating to Notice of Merger, Reorganization, or Conversion of a State Bank into Another Form of Financial Institution).

(b)  Subsection (f) of this section specifically addresses a sale of assets without shareholder approval under the Finance Code, §32.405(a)(7) or Finance Code, §203.003.

(c) Form of application. The applicant must submit a fully completed, verified application on a form prescribed by the banking commissioner and simultaneously tender the required filing fee pursuant to §15.2 of this title (relating to Filing and Investigation Fees). The application must, except to the extent waived by the banking commissioner, include:

(1) a summary of the proposed transaction, including a description of the types and total dollar amounts of assets and liabilities transferred;

(2) a copy of all agreements related to the proposed transaction executed by an authorized representative of each party to the transaction;

(3) for each party to the transaction, a certified copy of those portions of the minutes of board meetings and shareholder or participant meetings at which action was taken regarding approval of the transaction, or a certificate of an officer verifying the action taken by the board of directors and the shareholders or participants approving the transaction, or an explanation of the basis for concluding that this action was not required;

(4) an assessment of the continuing viability of the applicant, including a description of its future prospects, proposed officers and directors, and proposed branches and other locations;

(5) an assessment of the current regulatory and financial condition of each party to the transaction;

(6) if the proposed transaction will change the existing CRA delineated community of the applicant, a copy of the proposed CRA map depicting the proposed delineated community of the applicant;

(7) a copy of current financial statements for each entity involved in the proposed transaction, accompanied by an affidavit of no material change dated no earlier than 30 days prior to the date of submission of the application;

(8) a copy of the latest annual report for each financial institution and bank holding company involved in the proposed transaction;

(9) that portion of the watch list of the applicant that identifies low-quality assets being sold or related liabilities being transferred;

(10) a description of all material, legal or administrative proceedings involving the applicant;

(11) an opinion of legal counsel that conforms with §15.109 of this title (relating to Opinion of Legal Counsel), concluding:

(A) the sale of assets by the applicant has been duly authorized by the board and shareholders or participants of the applicant in accordance with the Texas Business Organizations Code, or that such authorization is not required, stating the basis for that conclusion;

(B) the transaction will not cause or result in a material violation of the laws of this state relative to the organization and operation of state banks;

(C) all deposit liabilities transferred in the transaction will be discharged or otherwise assumed or retained by a financial institution that is authorized by law to do so;

(D) each purchasing entity that is not a financial institution will not be engaged in the unauthorized business of banking; and

(E) all conditions with respect to the transaction imposed by the banking commissioner have been satisfied or otherwise resolved or, to the best knowledge of legal counsel, no conditions have been imposed;

(12) a copy of each filing regarding the proposed transaction that is required by another governmental authority, complete with all related attachments, exhibits, and correspondence;

(13) a current pro forma balance sheet and income statement of the applicant, with adjustments, reflecting the proposed sale of assets as of the most recent quarter ended immediately prior to the filing of the application;

(14) a copy of the applicant's strategic plan that complies with the department's Memorandum 1009, including projections of the balance sheet and income statement of the applicant as of the quarter ending one year from the date of its current pro forma financial statement required in accordance with paragraph (13) of this subsection;

(15) an explanation of compliance with or nonapplicability of the provisions of governing law relating to the rights of dissenting shareholders;

(16) an explanation of the manner and basis of valuing any of the shares or other evidences of ownership of a party that will constitute part of the consideration received for the sold assets;

(17) for antitrust purposes, an analysis of the anticipated competitive effect of the proposed transaction in the affected markets and a statement of the basis of the analysis of the competitive effects, or alternatively, a copy of the analysis of competitive effects of the proposed transaction addressed in the companion federal regulatory agency application, if applicable; and

(18) other information that the banking commissioner, in the exercise of discretion considers necessary to make an informed decision to approve or deny the proposed transaction.

(d) Applicant's duty to disclose. The applicant must supply all material information necessary for the banking commissioner to make a fully informed decision on the application.

(e) Public notice. Within 14 days prior to or 14 days after submission of the initial application, the applicant must publish notice in accordance with the requirements of §15.5 of this title (relating to Public Notice) in the community where its home office is located and in other communities as the banking commissioner may direct.

(f) Sale of assets without shareholder approval under the Finance Code, §32.405(c). The board of a state bank, with the prior written approval of the banking commissioner, may cause a bank to sell all or substantially all of its assets without shareholder or participant approval if the banking commissioner finds the interests of depositors and creditors are jeopardized because of insolvency or imminent insolvency and that the sale is in their best interest.

(1) To obtain approval of the banking commissioner under this subsection, the applicant must submit a verified application on a form prescribed by the banking commissioner and simultaneously tender the required filing fee pursuant to §15.2 of this title. The application must, except to the extent waived by the banking commissioner under §15.12 of this title (relating to Waiver of Requirements), include:

(A) a copy of each filing regarding the sale that is required by another governmental authority, complete with all related attachments, exhibits, and correspondence;

(B) a copy of the transaction agreement executed by an authorized representative of each party to the transaction, which must include an assumption and promise by the buyer to pay or otherwise discharge:

(i) all of the applicant's liabilities to depositors;

(ii) all of the applicant's liabilities for salaries of the applicant's employees incurred before the date of the sale;

(iii) obligations incurred by the banking commissioner arising out of the supervision or sale of the applicant; and

(iv) fees and assessments due the department;

(C) for each party to the transaction, a certified copy of those portions of the minutes of board meetings and, with respect to the purchaser, shareholder or participant meetings at which action was taken regarding approval of the transaction or a certificate of an officer verifying the action taken by the board of directors and the shareholders or participants approving the transaction, or in the alternative, an explanation of the basis for concluding that this action was not required;

(D) a copy of current financial statements for each entity involved in the proposed transaction, accompanied by an affidavit of no material change dated no earlier than 30 days prior to the date of submission of the application;

(E) that portion of the most recent watch list of the applicant that identifies low-quality assets;

(F) a description of all material legal or administrative proceedings involving the applicant; and

(G) other information that the banking commissioner, in the exercise of discretion, considers necessary to make an informed decision to approve or deny the proposed transaction. With respect to a proposed interstate merger transaction, the applicant must contact the department to determine additional information that the banking commissioner requires in the application.

(2) The banking commissioner will expedite processing of an application under this subsection to the extent required to protect the interests of the depositors and creditors of the applicant. An application under this subsection is not subject to the notice and publication requirements of §15.5 of this title except as may otherwise be required by the banking commissioner.

Source: The provisions of this §15.106 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective January 2, 2020, 44 TexReg 8232.

§15.107.  Notice of Merger, Reorganization, or Conversion of a State Bank into Another Form of Financial Institution.

(a) Scope. This section governs notice of the merger, reorganization, or conversion of a state bank into another form of financial institution pursuant to the Finance Code, §32.501 and §32.304.

(b) Form of notice. A state bank does not cease to be subject to the jurisdiction of the banking commissioner until the banking commissioner is given written notice of intent to merge, reorganize, or convert before the 31st day preceding the date of the proposed transaction and the merger, reorganization, or conversion has otherwise become effective. The notice must, except to the extent waived by the banking commissioner, include:

(1) a summary of the proposed transaction;

(2) a copy of all agreements or other documentation related to the proposed transaction executed by an authorized representative of the applicant and other parties, if any;

(3) a copy of each filing regarding the proposed transaction that is required by another governmental authority, complete with all related attachments, exhibits, and correspondence;

(4) a certified copy of those portions of the minutes of board meetings and shareholder or participant meetings at which action was taken regarding approval of the merger, reorganization, or conversion, or a certificate of an officer verifying the action taken by the board of directors and the shareholders or participants approving the merger, reorganization, or conversion;

(5) Opinion of legal counsel. An opinion of legal counsel that conforms with the requirements of §15.109 of this title (relating to Opinion of Legal Counsel), concluding:

(A) the merger, reorganization, or conversion of the state bank has been duly authorized by its board and shareholders or participants in accordance with the Finance Code, §32.501(b), and the Texas Business Organizations Code;

(B) all deposit and other liabilities of the state bank will be discharged or otherwise retained by the successor financial institution; and

(C) all conditions with respect to the merger, reorganization, or conversion imposed by the banking commissioner have been satisfied or otherwise resolved or, to the best knowledge of legal counsel, no conditions have been imposed;

(6) a publisher's certificate showing publication of notice as required by subsection (c) of this section;

(7) an explanation of compliance with the provisions of the Texas Business Organizations Code relating to rights of dissenting shareholders or participants; and

(8)  in addition to all other requirements of this subsection, with respect to an interstate merger transaction:

(A)  any additional opinions and information the applicant, by contacting the department, determines the banking commissioner requires; and

(B)  information regarding applicable host state law and evidence of compliance with the law.

(c) Notices, publication, and certificate of authority.

(1) The applicant must submit a copy of the published notice of the proposed transaction required by the successor regulatory authority or must publish notice as required by §15.5 of this title (relating to Public Notice). Submission of the notice, with the publisher's certificate required by subsection (b)(6) of this section, is considered notice of the transaction in accordance with the Finance Code, §32.501(c)(2). The banking commissioner may require, upon written notice to the applicant, other publication requirements at the times and places and in the manner considered appropriate.

(2)  With respect to an interstate merger application, the banking commissioner must determine whether the notice required by the successor regulatory authority is considered adequate notice in accordance with Finance Code, §32.501(c)(2). The applicant must inform the department of the publication requirements in the host state of the acquiring financial institution for the banking commissioner to determine, pursuant to §15.5(e) of this title, whether those requirements satisfy the publication requirements of this subsection.

(3) Within 14 days after receipt of the certificate of authority to do business, or another document issued by the successor regulatory authority authorizing the consummation of the merger, reorganization, or conversion, the successor financial institution must provide written notice to the banking commissioner of the effective date and a copy of the certificate of authority or other document.

(d) Filing fees. A filing fee is not required in connection with notice under this section.

Source: The provisions of this §15.107 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779.

§15.108.  Conversion of a Financial Institution into a State Bank.

(a) Scope. This section governs the application for conversion of a financial institution into a state bank pursuant to the Finance Code, §32.502.

(b) Form of application. The applicant must submit a fully completed, verified application on a form prescribed by the banking commissioner and simultaneously tender a filing fee in the amount required for the filing of an application for a new bank charter pursuant to §15.2 of this title (relating to Filing and Investigation Fees). The application must, except to the extent waived by the banking commissioner, include:

(1) a summary of the proposed transaction;

(2) a statement explaining whether the proposed state bank will be in compliance with each standard detailed in the Finance Code, §32.502(b), certified by the principal executive officer of the applicant;

(3) a copy of the plan of conversion executed by an authorized representative of the applicant;

(4) certificate of conversion, including:

(A) the plan of conversion;

(B) the certificate of formation of the proposed state bank;

(C) a provision conditioning the conversion upon the approval of the banking commissioner;

(5) a certified copy of those portions of the minutes of board meetings and shareholder or participant meetings at which action was taken regarding approval of the conversion, or a certificate of an officer verifying the action taken by the board of directors and the shareholders or participants approving the conversion;

(6) an assessment of the future prospects, proposed officers and directors, and proposed branches and other locations of the proposed state bank;

(7) an assessment of the current regulatory and financial condition of the applicant;

(8) if the conversion changes the existing CRA delineated community, a copy of a map depicting the proposed delineated community of the resulting state bank;

(9) a copy of the latest annual report for the applicant and, if applicable, its holding company;

(10) a copy of that portion of the most recent watch list for the applicant that identifies low-quality assets;

(11) a description of all material legal or administrative proceedings involving the applicant or an officer, director, or principal shareholder of the applicant;

(12) an opinion of legal counsel that conforms with §15.109 of this title (relating to Opinion of Legal Counsel), concluding:

(A) the conversion of the applicant has been duly authorized by its board and shareholders in accordance with governing law, and the applicant has in all material respects complied with the procedures prescribed by the federal, state, or foreign laws governing the exit of the applicant from its current regulatory system;

(B) the conversion will not cause or result in any material violation of the laws of this state concerning the organization and operation of state banks;

(C) the proposed state bank will not be engaged in a business other than banking or a business incidental to banking; and

(D) all conditions with respect to the conversion imposed by the banking commissioner have been satisfied or otherwise resolved or, to the best knowledge of legal counsel, no conditions have been imposed;

(13) a copy of each filing regarding the proposed conversion that is required by another governmental authority, complete with all related attachments, exhibits and related correspondence;

(14) a current pro forma balance sheet and income statement of the applicant, with adjustments, reflecting the proposed conversion as of the most recent quarter ended immediately prior to the filing of the application;

(15) a copy of the applicant's current strategic plan with a comparison to the strategic plan requirements contained in the department's Memorandum 1009, including projections of the balance sheet and income statement of the resulting state bank as of the quarter ending one year from the date of the pro forma financial statement required by paragraph (14) of this subsection;

(16) an explanation of compliance with or nonapplicability of the provisions of governing law relating to rights of dissenting shareholders to the conversion;

(17) a copy of all securities offering documents, proxy statements, or other disclosure materials delivered or to be delivered to shareholders in connection with the proposed conversion;

(18) an explanation of the manner and basis of converting any shares or other evidences of ownership of the applicant into shares, obligations, evidences of ownership, rights to purchase securities or other securities of the proposed state bank, into cash or other property, including shares, obligations, evidences of ownership, rights to purchase securities or other securities of another person or entity, or into any combination of these;

(19) other information that the banking commissioner, in the exercise of discretion, considers necessary to make an informed decision to approve or deny the proposed conversion; and

(20)  in addition to all other requirements of this subsection, with respect to conversion of an out-of-state financial institution into a state bank:

(A)  any additional opinions and information the applicant, by contacting the department, determines the banking commissioner requires; and

(B)  information regarding applicable host state law and evidence of compliance with the law.

(c) Applicant's duty to disclose. The applicant must supply all material information necessary for the banking commissioner to make a fully informed decision on the application.

(d) Public notice. Within 14 days prior to or 14 days after submission of an initial application under this section, the applicant must publish notice in accordance with §15.5 of this title (relating to Public Notice) in the specified communities where the home office of the applicant is located, and where the home office of the proposed state bank will be located, if different. With respect to a conversion of an out-of-state financial institution into a Texas state bank, the applicant must inform the department of the publication requirements in the host state for the banking commissioner to determine, pursuant to §15.5(e) of this title, whether those requirements satisfy the publication requirements of this subsection.

(e) Approval by the banking commissioner. The banking commissioner will approve a conversion only if the application indicates substantial compliance with all conditions of the Finance Code, §32.502(b).

Source: The provisions of this §15.108 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779; amended to be effective November 7, 2013, 38 TexReg 7687; amended to be effective January 2, 2020, 44 TexReg 8232.

§15.109.  Opinion of Legal Counsel.

(a) An opinion of legal counsel required by this subchapter must be addressed to the banking commissioner and state the opinions expressed, the specific documents reviewed and the matters considered of both law and fact, as legal counsel has considered necessary or appropriate in the exercise of professional judgment for the opinions expressed, and the assumptions, qualifications, limitations, and exceptions made or taken with respect to the opinions expressed. A draft opinion may be submitted with an application under this chapter provided a final, signed opinion is delivered to the banking commissioner prior to final action on the application. Any variation in the final opinion from the draft version must be specifically called to the attention of the banking commissioner.

(b) An opinion letter required under this subchapter will be governed by and interpreted in accordance with the Third Party Legal Opinion Report, Including the Legal Opinion Accord, of the Section of Business Law (American Bar Association, 1991), available in pamphlet form as reprinted from the November 1991 issue of The Business Lawyer (Volume 47, Number 1, Page 167), (the Accord), or a successor document officially promulgated by an appropriate authority.

(c) Unless specifically noted in the opinion, the department will assume that the opinions expressed are based upon and subject to the assumptions, qualifications, limitations and exceptions set forth in the Accord, provided the Accord is incorporated by reference. In addition, whether or not stated in the Accord, if specifically noted in the opinion, counsel:

(1) need not express an opinion as to the laws of the United States or a foreign jurisdiction, except as required by §15.108(b)(12)(A) of this title (relating to Conversion of a Financial Institution into a State Bank), or the laws of a state jurisdiction other than this state;8

(2) may assume that the parties to the transaction have engaged only in activities provided in their respective constitutive documents, and that all surviving parties to the transaction will engage only in activities provided in their respective constitutive documents;

(3) may assume that the transaction will be consummated in accordance with its terms as disclosed in the application; and

(4) may qualify the opinions given as opinions solely for the benefit of the department that may not be quoted in whole or in part or otherwise referred to in another document or report, and that may not be furnished to a person or entity other than the department and its representatives without the written consent of counsel, except as may be permitted or required by law, including the Finance Code, §31.303, and the Government Code, Chapter 552.

(d) Legal counsel must specifically notify the banking commissioner of any substantive deviation from the assumptions, qualifications, limitations and exceptions allowed in this section and the Accord, and any substantive deviation from the opinion requirements of the section of this subchapter that governs a particular application. Deviations may result in a processing delay of the application to the extent additional analysis is required to understand the purpose of the deviation. A substantive deviation from the requirements of this subchapter applicable to legal opinions that is not brought to the attention of the banking commissioner will be considered a material misrepresentation in the application.

(e) Legal counsel rendering an opinion under this subchapter must be an attorney in good standing admitted to practice before the highest court of a state, territory or district of the United States. However, legal counsel must be well versed and professionally competent in applicable Texas law, or should seek the advice and opinion of an attorney in good standing admitted to practice before the highest courts in this state if legal counsel may not properly and ethically render opinions regarding applicable Texas law. An opinion of local legal counsel must be disclosed if relied on by legal counsel. Additionally, with respect to an interstate merger transaction, conversion of an out-of-state financial institution into a Texas bank, or other transaction under Finance Code, Title 3, Subtitle G, legal counsel must be well versed and professionally competent in applicable home state and host state law and United States law regarding interstate banking and branching.

(f) Legal counsel rendering an opinion under this subchapter must be independent of the applicant, the notice provider, or another person or entity required to submit an opinion of counsel pursuant to this section. Legal counsel is considered independent if able to exercise independent professional judgment and render candid advice, whether in private practice or employed by an applicant.

Source: The provisions of this §15.109 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80.

§15.110.  Rights of Dissenting Shareholders.

The rights of dissenting shareholders or participants to a merger, share exchange, or conversion under this subchapter are governed by the Finance Code, §32.303, and the Texas Business Organizations Code or other applicable law relating to the rights of dissenters, and applicants must provide evidence of compliance with or inapplicability of these provisions of law.

Source: The provisions of this §15.110 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779.

§15.111.  Investigation of Application.

(a) Authority. An application under this subchapter is subject to an investigation as considered necessary, in the banking commissioner´s sole discretion, in order to make an informed decision regarding an application.

(b) Costs and fees. An applicant under this subchapter must pay reasonable costs incurred in the investigation including the cost of a required examination, as provided by §3.36(h) of this title (relating to Annual Assessments and Specialty Examination Fees) and §15.2(e) of this title (relating to Filing and Investigation Fees).

(c) Examinations. The banking commissioner may consider these factors in determining whether to require an examination of one or more of the entities to the transaction:

(1) a question exists regarding the solvency or potential solvency of the applicant or one or more of the financial institutions or other entities involved in the proposed transaction;

(2) a financial institution involved in the transaction has not been examined by a state, federal, or foreign regulatory agency within the 18 month period immediately preceding the date of submission of the application;

(3) a financial institution involved in the proposed transaction has numerous substantive violations cited in its last examination report, or has a less than satisfactory regulatory rating;

(4) a question exists regarding the experience, ability, standing, trustworthiness, or integrity of the existing or proposed officers, directors, managers or managing participants of a party involved in the proposed transaction;

(5) a question exists whether a resulting state bank will operate in compliance with the law;

(6) a question exists whether a resulting state bank will be free from improper or unlawful influence or interference from its principal shareholders with respect to operation in compliance with the law;

(7) a question exists whether a resulting state bank will have adequate capitalization;

(8) one or more of the parties to the transaction is under a regulatory restriction; or

(9) other factors as determined in the sole discretion of the banking commissioner.

Source: The provisions of this §15.111 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective January 2, 2020, 44 TexReg 8232.

§15.112.  [Repealed July 10, 2008]

§15.113.  Approval; Conditional Approval; Denial of Application; Hearings.

(a) Approval, conditional approval, or denial. Except for expedited filings and applications for change of control governed by Finance Code, §33.003, the banking commissioner will approve or deny an application on or before a date that is 60 days after the date the application is accepted for filing pursuant to §15.4 of this title (relating to Required Information and Abandoned Filings). Provided, however, that the banking commissioner shall have the discretion to extend the timeframe for processing any application, if one of the conditions listed in §15.103(d) of this title (relating to Expedited Filings) exists.

(b) Pre-decision hearing. The banking commissioner may, in the exercise of discretion, before the expiration of the initial period for decision provided by subsection (a) of this section, give the applicant written notice that the banking commissioner will convene a hearing to obtain evidence related to the application. Notice by the banking commissioner suspends the specified period for approval or denial of an application, and the banking commissioner will approve or deny the application on or before a date that is 30 days after the date the final proposal for decision resulting from the hearing is provided to the banking commissioner and the applicant.

(c) Acceptance of conditional approval. The banking commissioner may give the applicant written notice that the application has been approved subject to certain conditions. The applicant must provide the banking commissioner with written confirmation of acceptance of the conditions on or before a date that is 10 days after the date of notification to the applicant of the conditional approval. An agreement between the applicant and the banking commissioner concerning conditional approval is enforceable against the applicant. In the event an applicant who has received conditional approval does not provide the banking commissioner with written confirmation as required by this subsection, consummation of the transaction constitutes confirmation of acceptance of the conditions imposed by the banking commissioner and is considered for all purposes an agreement enforceable against the applicant.

(d) Requests for hearing. An applicant may request a hearing on or before a date that is 30 days after the effective date of notice of denial or conditional approval of an application under this subchapter by the banking commissioner. The request for hearing must be in writing and state with specificity the reasons the applicant alleges that the decision of the banking commissioner is in error. The applicant has the burden of proof for each issue specified in the request for hearing. The request for hearing and the banking commissioner's decision to deny or condition the application will be made a part of the record.

(e) Hearings on denial of applications. Requests for hearing under this subchapter will be forwarded to the administrative law judge who must enter appropriate orders and conduct the hearing on or before a date that is 60 days after the date the request for hearing was received, or as soon after that as is reasonably possible, under Chapter 9 of this title (relating to Rules of Procedure for Contested Case Hearings, Appeals, and Rulemakings) and the Government Code, Chapter 2001. A proposal for decision, exceptions and replies to the proposal for decision, the final decision of the banking commissioner, and motions for rehearing are governed by Chapter 9 of this title. An applicant may not appeal denial of an application or conditional approval of an application until a final order is issued. After a hearing and final order, the applicant may appeal the final order as provided in the Finance Code, §31.202.

Source: The provisions of this §15.113 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 8, 2012, 37 TexReg 8779.

§15.114.  Consummation of a Transaction.

A transaction under this subchapter must be consummated as proposed in the application, in the agreement concerning conditional approval, or as provided in a final order. An approved transaction under this subchapter must be consummated within 12 months after the date of approval by the banking commissioner unless an extension is granted in writing. If an interim development warrants it, the banking commissioner may alter, suspend, or withdraw approval until a transaction is consummated.

Source: The provisions of this §15.114 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 7, 2004, 29 TexReg 80.

§15.115.  Notification.

A notification by the banking commissioner under this subchapter may be by registered or certified mail, return receipt requested, and is complete when the notification is deposited in the United States mail postage prepaid, return receipt requested, mailed to the address furnished in the application. Notification may also be made in person to the applicant, or to another person, financial institution, foreign corporation or domestic corporation, or other entity subject to this subchapter, by agent-receipted delivery or by courier-receipted delivery to the address furnished in the application, by email to the email address furnished in the application, or by telephonic document transfer to the fax number furnished in the application. Notice by telephonic document transfer served after 6:00 p.m. local time of recipient is considered as notice served on the following day.

Source: The provisions of this §15.115 adopted to be effective September 15, 1997, 22 TexReg 8948; amended to be effective January 2, 2020, 44 TexReg 8232.

§15.116.  Abandoned Filing.

The banking commissioner may determine an application under this subchapter to be abandoned pursuant to §15.4 of this title (relating to Required Information and Abandoned Filings).

Source: The provisions of this §15.116 adopted to be effective September 15, 1997, 22 TexReg 8948.

§15.117.  Confidentiality.

Information obtained by the banking commissioner under this subchapter is presumed to be public information unless such information is confidential under the Finance Code, §31.301 et seq,9 and §3.111 of this title (relating to Confidential Information), or under exceptions contained in Government Code, Chapter 552. The applicant has the burden to request confidential treatment for specified information, to segregate and mark documents claimed to be confidential, and to specifically reference the provision of law that allows confidential treatment.

Source: The provisions of this §15.117 adopted to be effective September 15, 1997, 22 TexReg 8948.

Subchapter G. Charter Amendments and Certain Changes in Outstanding Stock

§15.121.  Acquisition and Retention of Shares as Treasury Stock.

(a) Permitted acquisition of treasury stock. Pursuant to Finance Code, §34.102, a state bank may acquire its own shares to be held as treasury stock if the acquisition is necessary to avoid or minimize a loss on a loan or investment previously made in good faith or is made in compliance with this section. An acquisition under the authority of this section may constitute an isolated transaction or a continuing plan of acquisition and may not be made for speculation or as a means of evading a requirement or obligation under federal or state banking laws.

(b) Application. A state bank that desires to acquire its own shares to be held as treasury stock under the authority of this section must file an application regarding its plan of acquisition with the banking commissioner, setting forth or including as exhibits:

(1) consistent with subsection (f) of this section, the pro forma effects of the plan of acquisition on the bank´s liquidity and equity capital, and disclosure of the basis for calculations, including:

(A) the price or price range per share at which the shares will be acquired;

(B) the number of shares sought to be acquired, expressed as a maximum; and

(C) the source of funds for the acquisition;

(2) the date by which the plan of acquisition will be completed;

(3) a certified copy of a resolution duly adopted by the board of directors, approving the plan of acquisition; and

(4) a current draft of the securities offering document or other disclosure materials proposed to be delivered to shareholders considering the sale of bank shares to the bank.

(c) Action on application. The banking commissioner will approve or deny the application not later than the 30th day after the application is complete and accepted for filing pursuant to §15.4(b) of this title (relating to Required Information and Abandoned Filings), and may impose conditions on an approved plan of acquisition, including limitations on the number of shares to be acquired or a condition that the approval expire as of a specified date. The banking commissioner may deny the application if the banking commissioner concludes that the bank´s plan of acquisition:

(1) will result in acquisition of treasury stock at an aggregate cost in excess of its undivided profits, or may otherwise threaten the adequacy of the bank´s equity capital or its liquidity;

(2) appears to be for speculation or a means of evading a requirement or obligation under federal or state banking laws; or

(3) could otherwise place the bank in an unsafe or unsound condition.

(d) Compliance with securities law.

(1) An issuer´s purchase of its own shares is a transaction subject to the antifraud provisions of federal securities law, see 15 United States Code, §78j, 17 Code of Federal Regulations, §240.10b-5, and Spector v. L Q Motor Inns, Inc., 517 F.2d 278 (5th Cir. 1975), cert. denied, 423 U.S. 1055 (1976). The transaction is also subject to the antifraud provisions of state securities law, see Texas Government Code, Title 12. Potential liability of the state bank to the selling shareholder can therefore arise if the state bank withholds or misrepresents material facts that the seller would have considered important in making the decision to sell.

(2) Approval of an application under this section by the commissioner does not constitute a determination that the bank has complied with applicable securities law.

(e) Retention of treasury stock. Notwithstanding Finance Code, §34.102(c), treasury stock acquired by a state bank, whether to avoid or minimize a loss on a loan or investment previously made in good faith or under an approved plan of acquisition, may be held indefinitely as treasury stock; provided that the banking commissioner may require a state bank to cancel and retire all or part of shares held as treasury stock to the status of authorized and unissued shares if the banking commissioner concludes that holding treasury stock in the amount held by the bank creates safety and soundness or other regulatory concerns.

(f) Accounting for treasury stock. A state bank must account for the acquisition and retention of treasury stock in accordance with generally accepted accounting principles as prescribed by Financial Accounting Standard Board Accounting Standard Codification Topic 505-30, Treasury Stock. The method used for accounting for treasury stock must be clearly reflected in the bank's accounting records.

(g) Status of treasury stock. Shares held by a state bank as treasury stock may not be voted, directly or indirectly, at any meeting of shareholders, and may not be counted in determining the total number of outstanding shares at any given time.

Source: The provisions of this §15.121 adopted to be effective April 16, 1997, 22 TexReg 3399; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective March 12, 2024, 49 TexReg 1457.

§15.122.  Amendment of Certificate to Effect a Reverse Stock Split.

(a) Definitions. When these words and terms are used in this section they will have these meanings, unless the context clearly indicates otherwise.

(1) Affiliate-A person that directly or indirectly through one or more intermediaries controls, is controlled by, or is under common control with a state bank seeking to effect a reverse stock split. A person who is not an affiliate of the state bank at the commencement of its reverse stock split will not be considered an affiliate of the bank prior to the completion of the reverse stock split.

(2) Appraisal report-A report, opinion (other than an opinion of counsel), or appraisal from an outside party which is materially related to the reverse stock split, including a report, opinion, or appraisal relating to the consideration or the fairness of the consideration to be offered to shareholders in connection with the reverse stock split or the fairness of the transaction to the state bank or to unaffiliated shareholders.

(3) Reverse stock split-An amendment to the certificate of formation of a state bank that achieves a reduction in the number of issued shares of the bank by requiring exchange of all issued shares in a particular class for a proportionately smaller number of shares, generally with a proportionately increased par or stated value. The equity capital of the state bank remains substantially the same.

(4) Share-A unit representing ownership of at least part of the proprietary interests of a state bank, whether or not divided or subdivided by means of classes, series, relative rights, or preferences; and includes a stock or similar security; or a security convertible, with or without consideration, into such a security, or carrying a warrant or right to subscribe to or purchase such a security; or such warrant or right; or another security determined by the banking commissioner to be an equity security pursuant to the Finance Code, §31.002(a)(9)(B).

(5) Unaffiliated shareholder-A shareholder of a share subject to a reverse stock split who is not an affiliate of the state bank that issued the share.

(b) Procedure. Pursuant to the Finance Code, §32.101, to effectuate a reverse stock split in compliance with this section, a state bank must:

(1) obtain the approval of its shareholders as required by law; and

(2) obtain the approval of the banking commissioner pursuant to subsection (d) of this section, by filing an application setting forth the information and documents required by subsection (c) of this section and the filing fee required by §15.2 of this title (relating to Filing and Investigation Fees).

(c) Application. A state bank proposing a reverse stock split transaction must file with the banking commissioner a written application seeking approval of the proposed amendment to its certificate of formation, stating the results of the vote of shareholders regarding the proposed reverse stock split and stating the percentage of shares of unaffiliated shareholders that were voted in favor of the proposed reverse stock split, or undertaking to supplement the application after conditional approval is obtained to provide shareholder approval information, setting forth or including as exhibits:

(1) the original and one copy of the proposed amendment to the certificate of formation, to be processed in the manner required by the Finance Code, §32.101(c), and a description of the material terms of the proposed reverse stock split, including terms or arrangements relating to any shareholder of the state bank which are not identical to those relating to other shareholders of the same class;

(2) any plan or proposal of the state bank, regarding activities or transactions which are to occur after the reverse stock split which relate to or would result in:

(A) an extraordinary corporate transaction, such as a merger, reorganization, or liquidation, involving the state bank or any of its subsidiaries;

(B) a sale or transfer of a material amount of assets of the state bank or any of its subsidiaries;

(C) a change in the present board of directors or management of the state bank, including a plan or proposal to change the number or term of directors, to fill an existing vacancy on the board or to change a material term of the employment contract of an executive officer;

(D) a material change in the present dividend rate or policy or indebtedness or capitalization of the state bank;

(E) any other material change in the state bank´s corporate structure or business;

(3) the corporate purpose or purposes of the state bank for the reverse stock split, and alternative means, if any, considered by the state bank to accomplish the purposes and the reasons for their rejection, and the reason for choosing the structure of a reverse stock split and for undertaking the transaction at this time;

(4) a certified resolution of the board of directors of the state bank approving the proposed amendment to the certificate of formation, accompanied by a statement whether or not the board of directors of the state bank reasonably believes that the reverse stock split is fair or unfair to unaffiliated shareholders that:

(A) identifies each director, if any, that dissented to or abstained from voting on the merits of the reverse stock split, and describes, if known to the state bank after making reasonable inquiry, the reasons for each dissent or abstention; and

(B) states the number and percentage of disinterested directors that voted in favor of the proposed reverse stock split;

(5) whether or not the state bank obtained an appraisal report and, if an appraisal report was obtained, a copy of the appraisal report. To the extent not addressed in the appraisal report, the state bank must disclose:

(A) the identity, qualifications, and method of selection of the outside party that prepared the appraisal report, any material relationship between the outside party or its affiliates and the state bank or its affiliates which existed during the past two years or is mutually understood to be contemplated, and any compensation received or to be received as a result of the relationship;

(B) a summary of the performance of the appraisal report, including the procedures followed, the findings and recommendations, the bases for and methods of arriving at the findings and recommendations, instructions received from the state bank, and any limitation imposed by the state bank on the scope of the investigation; and

(C) whether the appraisal report will be made available for inspection and copying at the home office of the state bank during its regular business hours by any shareholder of the state bank or any shareholder´s representative who has been so designated in writing;

(6) with respect to the class of shares to which the reverse stock split relates, the aggregate amount and percentage of shares beneficially owned by any pension, profit sharing, or similar plan of the state bank, and by each officer, director, principal shareholder, and subsidiary of the state bank;

(7) with respect to any purchases of the shares made by the state bank since the commencement of the bank´s second full fiscal year preceding the date of the application, the amount of the shares purchased, the range of prices paid for the shares, and the average purchase price for each quarterly period of the bank during this period;

(8) to the extent known to the state bank after reasonable inquiry, any transaction in the class of shares subject to the proposed reverse stock split that was effected during the past 60 days by the state bank or by an officer, director, principal shareholder, or subsidiary of the state bank, including the identity of the person who effected the transaction, the date of the transaction, the amount of shares involved, the price per share, and where and how the transaction was effected;

(9) to the extent known to the state bank after reasonable inquiry, a description and/or a copy of any contract, arrangement, understanding, or relationship (whether or not legally enforceable) in connection with the reverse stock split between the state bank (or an officer, director, principal shareholder, or subsidiary of the state bank) and any person with respect to any shares of the state bank (including a contract, arrangement, understanding, or relationship concerning the transfer or the voting of these shares, joint ventures, loan, or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies, consents, or authorizations), naming the persons with whom these contracts, arrangements, understandings, or relationships have been entered into and giving the material provisions thereof, including information for any of these shares that are pledged or otherwise subject to a contingency, the occurrence of which would give another person the power to direct the voting or disposition of these shares, except that disclosure of standard default and similar provisions contained in loan agreements need not be included;

(10) to the extent known to the state bank after reasonable inquiry, whether or not any officer, director, principal shareholder, or subsidiary of the state bank has made a recommendation in support of or opposed to the reverse stock split and, if so, the reasons for the recommendation;

(11) whether or not appraisal rights are being voluntarily accorded by the state bank to shareholders in connection with the reverse stock split and whether or not any provision has been or will be made to allow unaffiliated shareholders to obtain counsel or appraisal services at the voluntary expense of the state bank and, if so, a detailed description of these appraisal rights or counsel or appraisal services;

(12) a reasonably itemized statement of all expenses incurred or estimated to be incurred in connection with the reverse stock split, including filing fees, legal, accounting, and appraisal fees, solicitation expenses, and printing costs, and disclosure of the person who has paid or will be responsible for paying such expenses;

(13) the proxy statement furnished to shareholders of the state bank in connection with obtaining shareholder approval for the reverse stock split, or a draft of the proxy statement to be furnished to shareholders in the event approval of the banking commissioner is sought prior to a shareholder vote; and

(14) such other information that the banking commissioner considers necessary to make an informed decision to approve or reject the proposed amendment effectuating a reverse stock split.

(d) Standards for approval.

(1) The banking commissioner will process the proposed reverse stock split in accordance with the Finance Code, §32.101(c). The banking commissioner will require that the reverse stock split be for valid business purposes of the bank itself, viewed as an entity distinct from its affiliates, and be accomplished through fair dealing with and a fair price to unaffiliated shareholders. The banking commissioner may impose conditions on approval, including a condition that an independent appraisal report be obtained regarding the value of the unaffiliated shareholders´ shares, exclusive of any element of value arising from the accomplishment or expectation of the proposed transaction, and without minority discount. Share value determined by an independent and properly prepared appraisal report that is fully disclosed to bank shareholders or by the market price of publicly traded shares will be presumed to be a fair value unless extenuating circumstances to the contrary are specifically noted.

(2) In the event approval of the banking commissioner is obtained prior to approval by shareholders, the state bank must file a statement with the banking commissioner certifying that any future event or condition upon which the approval of the transaction was conditioned has been satisfied and the date that each such condition was satisfied. Upon receipt of such statement, the banking commissioner will file the approved amendment to the certificate of formation in accordance with the Finance Code, §32.101(c).

(3) An issuer´s purchase of its own shares is a transaction subject to the antifraud provisions of federal securities law, see 15 United States Code, §78j, 17 Code of Federal Regulations (CFR), §240.10b-5, and Spector v. L Q Motor Inns, Inc., 517 F.2d 278 (5th Cir. 1975), cert. denied, 423 U.S. 1055 (1976). Such a transaction is also subject to the antifraud provisions of state securities law, see Texas Government Code, Title 12. Potential liability of the state bank to the selling shareholder can therefore arise if the state bank withholds or misrepresents material facts that the seller would have considered important in making the decision to sell. Consequently, a state bank must disclose to the shareholders in writing, prior to or simultaneously with the written notice of the shareholders meeting, all material information necessary to make an informed decision regarding the proposed reverse stock split. If the reverse stock split involves publicly traded shares and is subject to 15 CFR, §240.13e-3, the registration statement required by federal law is considered to satisfy this disclosure obligation. Approval of an application under this section by the banking commissioner does not constitute a determination that the bank has complied with applicable securities law.

(e) Exemptions.

(1) This section does not apply to a reverse stock split that:

(A) will not result in fractional shares;

(B) permits each shareholder to choose to cash in the resulting fractional share by selling it to the state bank or to round up to the next highest whole share by purchasing fractional interests, provided that:

(i) the specified sale and purchase prices are equivalent and reasonable; and

(ii) no fractional share resulting from the reverse stock split is less than 10% of a full share;

(C) is adopted by means of a unanimous written consent of shareholders; or

(D) the banking commissioner expressly exempts after written application as not within the purposes of this section.

(2) An amendment to the certificate of formation that implements a reverse stock split exempt from this section is filed and processed in accordance with the Finance Code, §32.101.

(3) The availability of an exemption from the requirements of this section does not relieve a state bank from its obligation to comply with applicable securities law.

Source: The provisions of this §15.122 adopted to be effective April 16, 1997, 22 TexReg 3400; amended to be effective November 13, 1997, 22 TexReg 10955; amended to be effective January 7, 2004, 29 TexReg 80; amended to be effective November 7, 2013, 38 TexReg 7687; amended to be effective January 2, 2020, 44 TexReg 8232; amended to be effective March 12, 2024, 49 TexReg 1457.

CHAPTER 35.  CHECK VERIFICATION ENTITIES (TITLE 7; PART 2)

Subchapter A. General Provisions

§35.1.  Definitions.

In this subchapter:

(1) Banking commissioner--The Commissioner of the Texas Department of Banking.

(2)  Department--The Texas Department of Banking.

(3)  Electronic notification system--The secure e-mail or other secure system established under §11.309, Finance Code, and used by financial institutions to notify check verification entities as required by §523.052, Business & Commerce Code.

(4)  Financial institution--A financial institution as defined by §523.052(a)(2), Business & Commerce Code.

(5)  Police report--A police report of an offense under Section 32.51, Penal Code.

(6)  Sworn statement--The sworn statements referred to in §523.052(b)(2) and §523.052(e)(2)(B), Business & Commerce Code, except when the term is specifically limited to one of the sworn statements.

(7)  Written authorization--The written authorization referred to in §523.052(b)(3), Business & Commerce Code.

Source: The provisions of this §35.1 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

Subchapter B.  Registration of Check Verification Entities

§35.11.  Who must register with the banking commissioner?

An entity is a check verification entity and must register with the banking commissioner if it:

(1)  is a consumer reporting agency as defined in the Fair Credit Reporting Act (15 U.S.C. Section 1681 et seq.);

(2)  contracts with businesses in this state to recommend acceptance or rejection of checks or similar sight orders received by the businesses; and

(3)  compiles and maintains files on consumers on a nationwide basis regarding the consumers' check-writing history for those businesses with which it contracts.

Source: The provisions of this §35.11 adopted to be effective January 3, 2008, 32 TexReg 9940.

§35.12.  What is the registration requirement for a check verification entity?

A check verification entity must register with the department and then renew the registration annually thereafter on forms prescribed by the department.

Source: The provisions of this §35.12 adopted to be effective January 3, 2008, 32 TexReg 9940.

§35.13.  What must a check verification entity do to register in Texas?

(a)  A check verification entity must complete and submit the registration form prescribed by the banking commissioner, which at a minimum, must include:

(1)  the full legal name, any assumed name, principal business address, mailing address, business telephone number, facsimile number, and website address of the check verification entity;

(2)  the full legal name, title, business telephone number, facsimile number, and e-mail address of the following persons associated with the check verification entity:

(A)  the person responsible for questions about the registration or renewal process; and

(B)  the person responsible for compliance with the requirements of §523.052, Business & Commerce Code.

(3)  a statement that:

(A)  the registration information is true and correct; and

(B)  it has business clients in Texas and compiles and maintains files on consumers on a nationwide basis regarding consumers' check-writing history for those businesses;

(4)  such other information as the banking commissioner may require, including information confirming that the registering entity is required to register under §35.11 of this title; and

(5)  a certification by an authorized officer that the information therein is true and correct; and

(b)  Submit the nonrefundable annual registration fee of $100 with the registration form.

Source: The provisions of this §35.13 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

§35.14.  Is there a fee for registering a check verification entity? 

A check verification entity must pay a $100 fee to the department when it initially submits a completed registration form to the department and then annually thereafter when it submits a form to renew its registration.

Source: The provisions of this §35.14 adopted to be effective January 3, 2008, 32 TexReg 9940.

§35.15.  When does a check verification entity's registration expire?

Regardless of the date on which a registration under this chapter is effective, the registration expires on March 1 of each year.

Source: The provisions of this §35.15 adopted to be effective January 3, 2008, 32 TexReg 9940.

§35.16.  How does a check verification entity renew its registration?

To renew a registration, a check verification entity must file a completed registration form pursuant to the instructions in §35.13 of this title, on or before February 1 of each year.

Source: The provisions of this §35.16 adopted to be effective January 3, 2008, 32 TexReg 9940.

§35.17.  What must a check verification entity do when its registration information changes?

A check verification entity must notify the department of any change in the registration information provided to the department not later than the 30th day after the date of the change.

Source: The provisions of this §35.17 adopted to be effective January 3, 2008, 32 TexReg 9940.

§35.18. How long will the department take to process my registration?

(a) On or before the 15th day after the date the department receives your registration form, the department will notify you in writing that:

(1) your registration form is incomplete and specify the additional information required before the department will accept your registration for filing; or

(2) your registration is complete and accepted for filing.

(b) On or before the 30th day after the date the department accepts your registration for filing, the banking commissioner will approve or deny your registration and advise you in writing of the decision.

Source: The provisions of this §35.18 adopted to be effective June 30, 2016, 41 TexReg 4638.

§35.19.       What remedy is available if the department does not comply with the registration processing times?

(a) If the department does not process your registration within the time periods specified in §35.18 of this title, you may file a written complaint with the banking commissioner. The complaint must set out the facts regarding the delay and the specific relief you seek. The department must receive your complaint on or before the 30th day after the date the commissioner approves or denies your registration.

(b) The department division responsible for complying with the applicable time period must submit a written response to the banking commissioner regarding your complaint that includes any facts on which the division relies to show that good cause existed for exceeding the applicable time period.

(c) The banking commissioner will review your written complaint and the division's response. If the commissioner deems it necessary, a hearing may be held to take evidence on the matter.

(d) The banking commissioner will determine, based upon your complaint and the division's response, if the department exceeded the applicable time period and, if so, whether the responsible division established good cause for the delay.

(e) The banking commissioner will notify you of the decision regarding your complaint on or before the 60th day after the date the commissioner receives your written complaint. The commissioner's decision is final and may not be appealed.

(f) If the banking commissioner decides that the department exceeded the applicable time period without good cause, the department will reimburse you all of your registration fees.

(g) A decision in your favor under this section does not affect any decision by the banking commissioner to grant or deny your registration. The decision to grant or deny your registration is based upon applicable substantive law without regard to whether the department timely processed your registration.

Source: The provisions of this §35.19 adopted to be effective June 30, 2016, 41 TexReg 4638.

Subchapter C.  Responsibilities of the Banking Commissioner

§35.31.  What is the banking commissioner required to do with respect to the electronic notification system?

(a)  The banking commissioner is required to establish an electronic notification system, through secure email or another secure system, to be used by a financial institution to notify check verification entities as required by §523.052, Business & Commerce Code.

(b)  The department will maintain the electronic notification system for financial institutions to use to transmit the required information to check verification entities, but the department:

(1)  will not verify the accuracy, validity, or completeness of any information transmitted through the electronic notification system; and

(2)  is not furnishing the information to the check verification entities.

Source: The provisions of this §35.31 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

Subchapter D.  Procedure Following a Customer Report of an Offense Under Section 32.51, Penal Code

§35.51.  What is an offense under Section 32.51, Penal Code?

Generally, a person commits an offense under §32.51, Penal Code, if the person, with the intent to harm or defraud another, obtains, possesses, transfers, or uses:

(1)  identifying information of another person without the other person's consent; or

(2)  without legal authorization, information concerning a deceased person that would be identifying information of that person were that person alive.

Source: The provisions of this §35.51 adopted to be effective January 3, 2008, 32 TexReg 9940.

§35.52.  What must a financial institution or check verification entity do when a person reports to it that the person was the victim of an offense under Section 32.51, Penal Code?

(a)  When a customer reports to a financial institution that they have been the victim of an offense under §32.51, Penal Code, the financial institution is encouraged to provide the customer with a sworn statement form under §523.052(b)(2), Business & Commerce Code, and a written authorization form under §523.052(b)(3).

(b)  When a person reports to a check verification entity that they have been the victim of an offense under §32.51, Penal Code, the check verification entity is encouraged to provide the person with a sworn statement form under §523.052(e)(2)(B), Business & Commerce Code.

(c)  If a person agrees to receive the documents described in subsection (a) or (b) of this section in a particular electronic format or on the Internet, a financial institution or check verification entity may provide the documents to the person electronically or by providing the person with the URL address of the webpage where the forms are located:

(1)  on the website of the financial institution or check verification entity; or

(2)  on the department's website.

Source: The provisions of this §35.52 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

§35.53.  Will the department provide model forms for the sworn statement and written authorization required by Section 523.052(b)(2) and (3), Business & Commerce Code?

(a)  The department has provided a model form combining the sworn statement under §523.052(b)(2), Business & Commerce Code, and the written authorization under §523.052(b)(3) for use by financial institutions.

(b)  The department has provided a model form sworn statement under §523.052(e)(2)(B), Business & Commerce Code, for use by check verification entities.

(c)  A financial institution or check verification entity may use and accept:

(1)  the model forms provided by the department; and

(2)  other forms that contain spaces for persons to provide the information required by §523.052, Business & Commerce Code, and this Chapter.

(d)  The model forms in subsection (a) and (b) of this section are available on the department's website. The department encourages financial institutions, check verification entities, and other financial institution regulators to make the model forms, or the forms they use, available on their websites.

(e)  A financial institution may use and accept a form that combines the sworn statement and the written authorization into a single form.

Source: The provisions of this §35.53 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

§35.54.  What information must appear on the sworn statement required by Section 523.052(b)(2), Business & Commerce Code, for use when a person contacts a financial institution with the intent to send information through the electronic notification system? 

The sworn statement form required by §523.052(b)(2), Business & Commerce Code, must include:

(1)  a notice, at the top of the first page, that provides that:

(A)  the customer must file a police report regarding an offense under §32.51, Penal Code; and

(B)  the customer must return the completed sworn statement with either:

(i)  the incident or case number of the police report; or

(ii)  a copy of the police report.

(2)  blanks for the customer to provide:

(A)  customer's name, address, phone number, date of birth;

(B)  the number and the issuing governmental entity's name for the customer's:

(i)  drivers license or state issued identification card; or

(ii)  if the customer does not have a driver's license or state issued identification card, other government-issued identification.

(C)  the account number of any account compromised by the alleged offense and closed in response to the alleged offense;

(D)  routing number for the financial institution where the account was closed;

(E)  numbers or the range of numbers of any checks that have been lost, stolen, or compromised, if any;

(F)  the incident or case number of the police report; and

(G)  a signature before a notary public.

Source: The provisions of this §35.54 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

§35.55.  What information must appear on the written authorization required by Section 523.052(b)(3), Business & Commerce Code?

The written authorization form provided to a customer by a financial institution must contain:

(1)  a signature bar for the customer's signature; and

(2)  a provision in uppercase, bold-faced type that is substantially similar to this provision and in at least 12-point font:

THE STATE OF TEXAS HAS ESTABLISHED AN ELECTRONIC NOTIFICATION SYSTEM TO DELIVER INFORMATION TO CHECK VERIFICATION ENTITIES REGARDING VICTIMS OF OFFENSES UNDER SECTION 32.51, PENAL CODE, REGARDING FRAUDULENT USE OR POSSESSION OF IDENTIFYING INFORMATION OF A PERSON. THE CHECK VERIFICATION ENTITIES USE INFORMATION RECEIVED TO ASSIST BUSINESSES IN DECIDING WHETHER TO ACCEPT CHECKS AND OTHER PAYMENT DEVICES PRESENTED TO THEM. BY SUBMITTING THIS FORM, YOU ARE AUTHORIZING ______________________ (NAME OF FINANCIAL INSTITUTION) TO SUBMIT THE INFORMATION YOU PROVIDED ON THE SWORN STATEMENT TO THE ELECTRONIC NOTIFICATION SYSTEM.

Source:  The provisions of this §35.55 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

§35.56.  What information must appear on the sworn statement required by Section 523.052(e)(2)(B), Business & Commerce Code, for use with a person who contacts a check verification entity directly?

The sworn statement required by §523.052(e)(2)(B), Business & Commerce Code, must include:

(1)  the information required by §35.54 of this title; and

(2)  a statement that the person has requested that their financial institution close any account that has been compromised by the alleged offense.

Source: The provisions of this §35.56 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

§35.57.  When must a financial institution submit customer information through the electronic notification system?

A financial institution must submit the information required by §523.052(d), Business & Commerce Code, to the electronic notification system not later than the second business day after the date the customer:

(1)  notifies the financial institution that the customer was a victim of an offense under  §32.51, Penal Code;

(2)  requests the financial institution close an account that has been compromised by the alleged offense; and

(3)  presents to the home office, if in Texas, or to any branch of the financial institution in Texas:

(A)  an incident or case number of the police report or a copy of the police report of an offense under §32.51, Penal Code;

(B)  the sworn statement required by §523.052(b)(2), Business & Commerce Code; and

(C)  the written authorization required by §523.052(b)(3), Business & Commerce Code.

Source: The provisions of this §35.57 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

§35.58.  May a financial institution or check verification entity accept a case or offense number issued by a police department instead of a copy of the police report?

Instead of a copy of the police report regarding an offense under §32.51, Penal Code, a person may provide a financial institution or check verification entity the case or offense number issued by the police department.

Source: The provisions of this §35.58 adopted to be effective January 3, 2008, 32 TexReg 9940.

§35.59.  What procedures must a check verification entity maintain to prevent recommending approval of a check or similar sight order after receipt of a notification of an offense under Section 32.51, Penal Code?

A check verification entity must process a notification received through the electronic notification system or pursuant to §523.052(e)(2), Business & Commerce Code, in the same manner as it processes information received from its usual sources, including information received from its business customers.

Source: The provisions of this §35.59 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.

Subchapter E.  Procedures When Incorrect Information Is Reported to the Check Verification Entity

§35.71.  What must a financial institution do when it receives notice from a customer or a check verification entity that it sent incorrect information through the electronic notification system?

A financial institution that determines or is informed that information it furnished to check verification entities through the electronic notification system is not complete or accurate must correct that information promptly in accordance with 15 U.S.C. §§1681 et seq. and other applicable law. The electronic notification system is available to the financial institution to provide the registered check verification entities with complete and accurate information.

Source: The provisions of this §35.71 adopted to be effective January 3, 2008, 32 TexReg 9940.

§35.72.  What must a check verification entity do when it receives notice directly from a person pursuant to Section 523.052(e)(2), Business & Commerce Code, or from a financial institution through the electronic notification system that information the check verification entity received was erroneous? 

Subject to other applicable state or federal law, a check verification entity that is notified that information it received through the electronic notification system is not complete or accurate must process the notice in the same manner as it processes such notices received from its usual sources, including information received from its business customers.

Source: The provisions of this §35.72 adopted to be effective January 3, 2008, 32 TexReg 9940; amended to be effective September 9, 2010, 35 TexReg 8102.