H.B. No. 1870
THE TEXAS TRUST COMPANY ACT
Effective Date: September 1, 1997 (most sections)
AN ACT
relating to the regulation of trust companies; providing administrative and criminal penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. The Texas Trust Company Act is enacted to read as follows:
CHAPTER 1. GENERAL PROVISIONS
Sec. 1.001. SHORT TITLE
Sec. 1.002. DEFINITIONS
Sec. 1.003. TRUST COMPANY RULES
CHAPTER 1. GENERAL PROVISIONS
Sec. 1.001. SHORT TITLE. This Act may be cited as the Texas Trust Company Act.
Sec. 1.002. DEFINITIONS. (a) In this Act:
(1) "Account" means the client relationship established with a trust company involving the transfer of funds or property to the trust company, including a relationship in which the trust company acts as trustee, executor, administrator, guardian, custodian, conservator, receiver, registrar, or agent.
(2) "Affiliate" means a company that directly or indirectly controls, is controlled by, or is under common control with a state trust company or other company.
(3) "Bank" means a state or national bank.
(4) "Banking commissioner" means the banking commissioner of Texas or a person designated by the banking commissioner and acting under the banking commissioner's direction and authority.
(5) "Board" means the board of directors, managers, or managing participants of, or a person or group of persons acting in a comparable capacity for, a state trust company or other entity.
(6) "Branch" means a location of a state trust company, other than the trust company's home office, at which the state trust company engages in the trust business.
(7) "Capital" means:
(A) the sum of:
(i) the par value of all shares or participation shares of a state trust company having a par value that have been issued;
(ii) the consideration fixed by the board in the manner provided by the Texas Business Corporation Act for all shares or participation shares of the state trust company without par value that have been issued, except a part of that consideration that:
(a) has been actually received;
(b) is less than all of that consideration; and
(c) the board, by resolution adopted not later than the 60th day after the date of issuance of those shares, has allocated to surplus with the prior approval of the banking commissioner; and
(iii) an amount not included in Subparagraphs (i) and (ii) of this paragraph that has been transferred to capital of the state trust company, on the payment of a share dividend or on adoption by the board of a resolution directing that all or part of surplus be transferred to capital, minus each reduction made as permitted by law; less
(B) all amounts otherwise included in Paragraphs (A)(i) and (ii) of this subdivision that are attributable to the issuance of securities by the state trust company and that the banking commissioner determines, after notice and an opportunity for hearing, should be classified as debt rather than equity securities.
(8) "Certified surplus" means the part of surplus designated by a vote of the board of a state trust company under Section 3.105 of this Act and recorded in the board minutes as certified.
(9) "Charter" means a corporate charter issued under this Act to engage in a trust business.
(10) "Client" means a person to whom a trust company owes a duty or obligation under a trust or other account administered by the trust company, regardless of whether the trust company owes a fiduciary duty to the person. The term includes a beneficiary of a trust for whom the trust company acts as trustee and a person for whom the trust company acts as agent, custodian, or bailee.
(11) "Company" includes a bank, trust company, corporation, partnership, association, business trust, or another trust.
(12) "Conservator" means the banking commissioner or an agent of the banking commissioner exercising the powers and duties provided by Subchapter B, Chapter 6, of this Act.
(13) "Control" means:
(A) the ownership of or ability or power to vote, directly, acting through one or more other persons, or otherwise indirectly, 25 percent or more of the outstanding shares of a class of voting securities of a state trust company or other company;
(B) the ability to control the election of a majority of the board of the state trust company or other company;
(C) the power to exercise, directly or indirectly, a controlling influence over the management or policies of the state trust company or other company as determined by the banking commissioner after notice and an opportunity for hearing; or
(D) the conditioning of the transfer of 25 percent or more of the outstanding shares or participation shares of a class of voting securities of the state trust company or other company on the transfer of 25 percent or more of the outstanding shares of a class of voting securities of another state trust company or other company.
(14) "Department" means the Texas Department of Banking.
(15) "Depository institution" means an entity with the power to accept deposits under applicable law.
(16) "Equity capital" means the amount by which the total assets of a state trust company exceed the total liabilities of the state trust company.
(17) "Equity security" means:
(A) stock or a similar security, any security convertible, with or without consideration, into such a security, a warrant or right to subscribe to or purchase such a security, or a security carrying such a warrant or right;
(B) a certificate of interest or participation in a profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share or participation share, investment contract, voting-trust certificate, or partnership interest; and
(C) a certificate of interest or participation in, temporary or interim certificate for, or receipt for a security described by this subdivision that evidences an existing or contingent equity ownership interest.
(18) "Fiduciary record" means a matter written, transcribed, recorded, received, or otherwise in the possession of a trust company that is necessary to preserve information concerning an act or event relevant to an account of a trust company.
(19) "Finance commission" means the Finance Commission of Texas.
(20) "Foreign corporation" means a company incorporated or organized under the laws of a jurisdiction other than this state. The term does not include a depository institution incorporated or organized under the laws of the United States and domiciled in this state.
(21) "Full liability participant" means a participant that agrees under the terms of a participation agreement to be liable under a judgment, decree, or order of court for the entire amount of all debts, obligations, or liabilities of a limited trust association.
(22) "Hazardous condition" means:
(A) a refusal by the trust company or an affiliate of the trust company to permit an examination of its books, papers, accounts, records, or affairs by the banking commissioner as provided by Section 2.002 of this Act;
(B) violation by a trust company of a condition of its chartering or an agreement entered into between the trust company and the banking commissioner or the department; or
(C) a circumstance or condition in which an unreasonable risk of loss is threatened to clients or creditors of a trust company, excluding risk of loss to a client that arises as a result of the client's decisions or actions, but including a circumstance or condition in which a trust company:
(i) is unable or lacks the means to meet its current obligations as they come due in the regular and ordinary course of business, even if the book or fair market value of its assets exceeds its liabilities;
(ii) has equity capital less than the amount of restricted capital the trust company is required to maintain under Section 3.007 of this Act, or has equity capital the adequacy of which is threatened, as determined under regulatory accounting principles;
(iii) has concentrated an excessive or unreasonable portion of its assets in a particular type or character of investment;
(iv) violates or refuses to comply with this Act, another statute or regulation applicable to trust companies, or a final and enforceable order of the banking commissioner;
(v) is in a condition that renders the continuation of a particular business practice hazardous to its clients and creditors; or
(vi) conducts business in an unsafe or unsound manner, including conducting business with:
(a) inexperienced or inattentive management;
(b) weak or potentially dangerous operating practices;
(c) infrequent or inadequate audits;
(d) administration of assets that is notably deficient in relation to the volume and character of or responsibility for asset holdings;
(e) unsound administrative practices;
(f) frequent and uncorrected material occurrences of violations of law, including rules, or terms of the governing instruments; or
(g) a notable degree of conflicts of interest and engaging in self-dealing.
(23) "Home office" means a location registered with the banking commissioner as a state trust company's home office at which:
(A) the trust company does business;
(B) the trust company keeps its corporate books and records; and
(C) at least one executive officer of the trust company maintains an office.
(24) "Insider" means:
(A) each director, manager, managing participant, officer, and principal shareholder or participant of a state trust company;
(B) each affiliate of the state trust company and each director, officer, and employee of the affiliate;
(C) any person who participates or has authority to participate, other than in the capacity of a director, in major policymaking functions of the state trust company, whether or not the person has an official title or the officer is serving without salary or compensation; or
(D) each company controlled by a person described by Paragraph (A), (B), or (C) of this subdivision.
(25) "Insolvent" means a circumstance or condition in which a state trust company:
(A) is unable or lacks the means to meet its current obligations as they come due in the regular and ordinary course of business, even if the value of its assets exceeds its liabilities;
(B) has equity capital less than $500,000, as determined under regulatory accounting principles;
(C) fails to maintain deposit insurance for its deposits with the Federal Deposit Insurance Corporation or its successor, or fails to maintain adequate security for its deposits as provided by Section 5.401(c) of this Act;
(D) sells or attempts to sell substantially all of its assets or merges or attempts to merge substantially all of its assets or business with another entity other than as provided by Chapter 3 of this Act; or
(E) attempts to dissolve or liquidate other than as provided by Chapter 7 of this Act.
(26) "Investment security" means a marketable obligation evidencing indebtedness of a person in the form of a bond, note, debenture, or other debt instrument not otherwise classified as a loan or extension of credit.
(27) "Limited trust association" means a state trust company organized as a limited trust association, authorized to issue participation shares, and controlled by its participants.
(28) "Loans and extensions of credit" means direct or indirect advances of money by a state trust company to a person that are conditioned on the obligation of the person to repay the funds or that are repayable from specific property pledged by or on behalf of the person.
(29) "Manager" means a person elected to the board of a limited trust association.
(30) "Managing participant" means a participant in a limited trust association in which management has been retained by the participants.
(31) "Mutual funds" means equity securities of an investment company registered under the Investment Company Act of 1940 (15 U.S.C. Section 80a-1 et seq.) and the Securities Act of 1933 (15 U.S.C. Section 77a et seq.). The term does not include money market funds.
(32) "Officer" means the presiding officer of the board, the principal executive officer, or another officer appointed by the board of a state trust company or other company, or a person or group of persons acting in a comparable capacity for the state trust company or other company.
(33) "Operating subsidiary" means a company for which a state trust company has the ownership, ability, or power to vote, directly, acting through one or more other persons, or otherwise indirectly, more than 50 percent of the outstanding shares of each class of voting securities or its equivalent of the company.
(34) "Participant" means an owner of a participation share in a limited trust association.
(35) "Participant-transferee" means a transferee of a participation share who has not received the unanimous consent of all participants to be a participant, or who becomes a participant-transferee under Subchapter C, Chapter 4, of this Act.
(36) "Participation agreement" means the instrument stating the agreement among the participants of a limited trust association relating to the rights and duties of the participants and participant-transferees, including allocations of income, loss, deduction, credit, distributions, liquidation rights, redemption rights, liabilities of participants, priority rights of participant-transferees to transfer participation shares, rights of participants to purchase participation shares of participant-transferees, the procedures for elections and voting by participants, and any other matter not prohibited by or inconsistent with this Act.
(37) "Participation shares" means the units into which the proprietary interests of a limited trust association are divided or subdivided by means of classes, series, relative rights, or preferences.
(38) "Person" means an individual or any other legal entity.
(39) "Principal shareholder" means a person who owns or has the ability or power to vote, directly, acting through one or more other persons, or otherwise indirectly, 10 percent or more of the outstanding shares or participation shares of any class of voting securities of a state trust company or other company.
(40) "Restricted capital" means the sum of capital and certified surplus.
(41) "Regulatory accounting principles" means generally accepted accounting principles as modified by rules adopted under this Act or an applicable federal statute or regulation.
(42) "Secondary capital" means the amount by which the assets of a state trust company exceed restricted capital, required by Section 3.007 of this Act, and liabilities.
(43) "Shareholder" means an owner of a share in a state trust company.
(44) "Shares" means the units into which the proprietary interests of a state trust company are divided or subdivided by means of classes, series, relative rights, or preferences.
(45) "State bank" means a banking association or limited banking association organized or reorganized under the Texas Banking Act (Article 342-1.001 et seq., Vernon's Texas Civil Statutes), including an association organized under the laws of this state before September 1, 1997, with the express power to receive and accept deposits and possessing other rights and powers granted by that Act expressly or by implication. The term does not include a savings association, savings bank, or credit union.
(46) "State trust company" means a trust association or limited trust association organized or reorganized under this Act, including an association organized under the laws of this state before September 1, 1997.
(47) "Subsidiary" means a state trust company or other company that is controlled by another person. The term includes a subsidiary of a subsidiary.
(48) "Supervisor" means the banking commissioner or an agent of the banking commissioner exercising the powers and duties specified in Subchapter B, Chapter 6, of this Act.
(49) "Trust association" means a trust company organized as a trust association, authorized to issue shares of stock, and controlled by its shareholders.
(50) "Trust business" means the business of a company holding itself out to the public as a fiduciary for hire or compensation to hold or administer accounts.
(51) "Trust deposits" means client funds held by a state trust company and authorized to be deposited with itself as a permanent investment or pending investment, distribution, or payment of debts on behalf of the client.
(52) "Unauthorized trust activity" means an act or practice within this state by a person without a charter, license, permit, registration, or other authority issued or granted by the banking commissioner or other appropriate regulatory authority for which such a charter, license, permit, registration, or other authority is required to conduct trust business.
(53) "Undivided profits" means the part of equity capital of a state trust company equal to the balance of its net profits, income, gains, and losses since the date of its formation minus subsequent distributions to shareholders or participants and transfers to surplus or capital under share dividends or appropriate board resolutions. The term includes amounts allocated to undivided profits as a result of a merger.
(54) "Voting security" means a share, participation share, or other evidence of proprietary interest in a state trust company or other company that has as an attribute the right to vote or participate in the election of the board of the trust company or other company, regardless of whether the right is limited to the election of fewer than all of the board members. The term includes a security that is convertible or exchangeable into a voting security and a nonvoting participation share of a managing participant.
(b) The definitions shall be liberally construed to accomplish the purposes of the Act.
(c) The finance commission by rule may adopt other definitions to accomplish the purposes of this Act.
Sec. 1.003. TRUST COMPANY RULES. (a) The finance commission may adopt rules to accomplish the purposes of this Act, including rules necessary or reasonable to:
(1) implement and clarify this Act;
(2) preserve or protect the safety and soundness of state trust companies;
(3) grant the same rights and privileges to state trust companies with respect to the exercise of fiduciary powers that are or may be granted to a state or national bank that is domiciled in this state and exercising fiduciary powers;
(4) provide for recovery of the cost of maintenance and operation of the department and the cost of enforcing this Act through the imposition and collection of ratable and equitable fees for notices, applications, and examinations; and
(5) facilitate the fair hearing and adjudication of matters before the banking commissioner and the finance commission.
(b) The presence or absence in this Act of a specific reference to rules regarding a particular subject does not enlarge or diminish the rulemaking authority conferred by this section.
CHAPTER 2. POWERS AND DUTIES OF TEXAS DEPARTMENT OF BANKING
SUBCHAPTER A. OPERATION OF DEPARTMENT
Sec. 2.001. INTERPRETIVE STATEMENTS AND OPINIONS
Sec. 2.002. EXAMINATION
Sec. 2.003. STATEMENTS OF CONDITION AND INCOME
Sec. 2.004. LIABILITY LIMITED
[Sections 2.005-2.100 reserved for expansion]
SUBCHAPTER B. CONFIDENTIALITY OF INFORMATION
Sec. 2.101. DISCLOSURE BY DEPARTMENT PROHIBITED
Sec. 2.102. DISCLOSURE TO FINANCE COMMISSION
Sec. 2.103. DISCLOSURE TO OTHER AGENCIES
Sec. 2.104. OTHER DISCLOSURE PROHIBITED
Sec. 2.105. CIVIL DISCOVERY
Sec. 2.106. INVESTIGATIVE INFORMATION
Sec. 2.107. EMPLOYMENT INFORMATION
Sec. 2.108. SHAREHOLDER INSPECTION RIGHTS
CHAPTER 2. POWERS AND DUTIES OF TEXAS DEPARTMENT OF BANKING
SUBCHAPTER A. OPERATION OF DEPARTMENT
Sec. 2.001. INTERPRETIVE STATEMENTS AND OPINIONS. (a) The banking commissioner may issue interpretive statements containing matters of general policy for the guidance of state trust companies. The banking commissioner shall file the statements for publication in the Texas Register. The banking commissioner may amend or repeal a published interpretive statement by issuing an amended statement or notice of repeal of a statement and filing the statement or notice for publication in the Texas Register. The secretary of state shall publish the filed statements and notices in the Texas Register and in a designated chapter of the Texas Administrative Code.
(b) The banking commissioner may issue an opinion in response to a specific request from a member of the public or the state trust company industry directly or through the deputy banking commissioner or the department's attorneys. If the banking commissioner determines that the opinion is useful for the general guidance of trust companies, the banking commissioner may file the opinion for publication in the Texas Register. A published opinion must be redacted in a manner that preserves the confidentiality of the requesting party, unless the requesting party consents to be identified in the published opinion. The banking commissioner may amend or repeal a published opinion by issuing an amended opinion or notice of repeal of an opinion and filing the opinion or notice for publication in the Texas Register, except that the requesting party may rely on the original opinion if all material facts were originally disclosed to the banking commissioner, considerations of safety and soundness of the affected trust companies are not implicated with respect to further and prospective reliance on the original opinion, and the text and interpretation of relevant governing provisions of this Act have not been changed by legislative or judicial action. The secretary of state shall publish the filed opinions and notices in the Texas Register and a designated chapter of the Texas Administrative Code.
(c) An interpretive statement or opinion issued under this section does not have the force of law and is not a rule for the purposes of Chapter 2001, Government Code, unless adopted by the finance commission as provided by Chapter 2001, Government Code. An interpretive statement or opinion is an administrative construction of this Act entitled to great weight if the construction is reasonable and does not conflict with this Act.
Sec. 2.002. EXAMINATION. (a) The banking commissioner shall examine each state trust company annually. The banking commissioner may examine a state trust company more often than annually as the banking commissioner considers necessary to safeguard the interests of clients, creditors, shareholders, participants, or participant-transferees and to enforce this Act. The banking commissioner may defer an examination for not more than six months if the banking commissioner considers the deferment necessary for the efficient enforcement of this Act.
(b) Each state trust company shall pay the cost of examination, the equitable or proportionate cost of maintenance and operation of the department, and the cost of enforcement of this Act through the imposition and collection of fees established by the finance commission under Section 1.003(a)(4) of this Act.
(c) The performance of data processing, electronic fund transfers, or other services or activities performed on behalf of a state trust company by a third-party contractor and the activities of a state trust company affiliate are subject to regulation and examination by the banking commissioner to the same extent as if the services or activities were performed by that state trust company on its own premises. The banking commissioner may collect a fee from the state trust company to cover the cost of the examination.
(d) The banking commissioner may administer oaths and examine persons under oath on any subject that the banking commissioner considers pertinent to the financial condition or the safety and soundness of the activities of a state trust company.
(e) The banking commissioner shall report the results of the examination in writing to the officers and directors, managers, or managing participants of the state trust company. A report of examination under this section is confidential and may be disclosed only under the circumstances set forth in Subchapter B of this chapter.
(f) The banking commissioner may accept an examination of a state trust company, a third-party contractor, or an affiliate of the state trust company by a federal or other governmental agency in lieu of an examination under this section or may conduct an examination of a state trust company, a third-party contractor, or an affiliate of the state trust company jointly with a federal or other governmental agency.
Sec. 2.003. STATEMENTS OF CONDITION AND INCOME. (a) Each state trust company periodically shall file with the banking commissioner a copy of its statement of condition and income.
(b) The finance commission by rule may:
(1) specify the form of the statement of condition and income, including specified confidential and public information to be in the statement;
(2) require public information in the statement to be published at the times and in the publications and locations the finance commission determines; and
(3) require the statement to be filed with the banking commission at the intervals the finance commission determines.
(c) A state trust company that fails to file a statement of condition and income on or before the date it is due is, after notice and hearing, subject to a penalty of not more than $500 a day for each day of noncompliance.
(d) Except for portions designated to be confidential by the banking commissioner, a statement of condition and income is a public record.
Sec. 2.004. LIABILITY LIMITED. (a) The banking commissioner, each member of the finance commission, the deputy banking commissioner, or an examiner, assistant examiner, supervisor, conservator, agent, or other officer or employee of the department is not personally liable for damages arising from the person's official act or omission, unless the act or omission is corrupt or malicious.
(b) The attorney general shall defend an action brought against a person because of an official act or omission under Subsection (a) of this section, regardless of whether the defendant has terminated service with the department before the action commences.
[Sections 2.005-2.100 reserved for expansion]
SUBCHAPTER B. CONFIDENTIALITY OF INFORMATION
Sec. 2.101. DISCLOSURE BY DEPARTMENT PROHIBITED. (a) Information obtained directly or indirectly by the department relative to the financial condition or business affairs of a state trust company, other than the public portions of a report of condition or income statement, or a present, former, or prospective shareholder, participant, officer, director, manager, affiliate, or service provider of the state trust company, whether obtained through application, examination, or otherwise, and each related file or record of the department is confidential and may not be disclosed by the banking commissioner or an employee of the department except as expressly provided otherwise by this Act or a rule adopted under Section 1.003(a)(1) of this Act.
(b) Information obtained by the department from a federal or state regulatory agency that is confidential under federal or state law may not be disclosed except as provided by federal or state law.
Sec. 2.102. DISCLOSURE TO FINANCE COMMISSION. Confidential information may not be disclosed to a member of the finance commission. A member of the finance commission may not be given access to the files and records of the department except that the banking commissioner may disclose to the finance commission information, files, and records pertinent to a hearing or matter pending before the finance commission.
Sec. 2.103. DISCLOSURE TO OTHER AGENCIES. (a) On request and execution of an appropriate confidentiality agreement approved by the banking commissioner, the banking commissioner may disclose to a federal banking regulatory agency confidential information relative to a state trust company within the agency's jurisdiction, or an affiliate or service provider of the trust company, and may permit the agency access to files and records or reports relating to the trust company or its affiliate or service provider.
(b) If the banking commissioner considers it necessary or proper to the enforcement of the laws of this state, another state, the United States, or a foreign sovereign state, or to the best interest of the public, the banking commissioner may disclose or authorize release of confidential information to another department of this state, another state, the United States, a foreign sovereign state, or any related agency or instrumentality.
Sec. 2.104. OTHER DISCLOSURE PROHIBITED. Confidential information that is provided to a state trust company, affiliate, or service provider of the trust company, whether in the form of a report of examination or otherwise, is the confidential property of the department. The information may not be made public or disclosed by the recipient or by an officer, director, manager, employee, or agent of the recipient to a person not officially connected to the recipient as officer, director, employee, attorney, auditor, independent auditor, or bonding company, except as authorized by rules adopted under this Act. A person commits an offense if the person discloses or uses the information in violation of this section. An offense under this section is punishable as if it were an offense under Section 37.10, Penal Code.
Sec. 2.105. CIVIL DISCOVERY. Discovery of confidential information from a person subject to this subchapter under subpoena or other legal process in a civil proceeding must comply with rules adopted under this Act and other applicable law. The rules may restrict release of confidential information to the portion directly relevant to the legal dispute at issue and may require that a protective order, in the form and under circumstances specified by the rules, be issued by a court before release of the confidential information.
Sec. 2.106. INVESTIGATIVE INFORMATION. Notwithstanding any other law, the banking commissioner may refuse to release information or records concerning a state trust company in the custody of the department if, in the opinion of the banking commissioner, release of the information or records might jeopardize an ongoing investigation of potentially unlawful activities.
Sec. 2.107. EMPLOYMENT INFORMATION. A person may provide employment information to a state trust company or to a person providing employment information to the trust company concerning the known or suspected involvement of a present or former employee, officer, or director in violation of any state or federal law, rule, or regulation that has been reported to appropriate state or federal authorities. A person may not be held liable for providing information under this section unless the information provided is false and the person provided the information with disregard for the truth.
Sec. 2.108. SHAREHOLDER INSPECTION RIGHTS. (a) Notwithstanding Article 2.44, Texas Business Corporation Act, a shareholder or participant of a state trust company may not examine:
(1) a report of examination or other confidential property of the department that is in the possession of the state trust company; or
(2) a book or record of the state trust company that directly or indirectly pertains to financial or other information maintained by the state trust company on behalf of its clients, including a specific item in the minutes of the board or a committee of the board regarding client account review and approval or any report that would tend to identify the state trust company's client.
(b) This section does not affect the rights of a shareholder or participant of a state trust company when acting in another capacity.
CHAPTER 3. POWERS; ORGANIZATION AND ORGANIZATIONAL CHANGES;
CAPITAL AND SURPLUS
SUBCHAPTER A. ORGANIZATION PROVISIONS; GENERAL PROVISIONS
Sec. 3.001. ORGANIZATION AND POWERS OF STATE TRUST COMPANY
Sec. 3.002. ARTICLES OF ASSOCIATION OF STATE TRUST COMPANY
Sec. 3.003. APPLICATION FOR STATE TRUST COMPANY CHARTER
Sec. 3.004. NOTICE AND INVESTIGATION OF CHARTER APPLICATION
Sec. 3.005. HEARING AND DECISION ON CHARTER APPLICATION
Sec. 3.006. ISSUANCE OF CHARTER
Sec. 3.007. RESTRICTED CAPITAL
Sec. 3.008. APPLICATION OF LAWS RELATING TO GENERAL BUSINESS
CORPORATIONS
Sec. 3.009. BANKING COMMISSIONER HEARINGS
Sec. 3.010. FINANCE COMMISSION HEARINGS; APPEALS
Sec. 3.011. EXEMPTION
Sec. 3.012. APPLICATION FOR EXEMPTION
Sec. 3.013. ANNUAL CERTIFICATION
Sec. 3.014. LIMITATION ON EFFECT OF EXEMPTION
Sec. 3.015. CHANGE OF CONTROL
Sec. 3.016. GROUNDS FOR REVOCATION OF EXEMPTION
Sec. 3.017. NOTICE AND EFFECT OF REVOCATION OF EXEMPTION
Sec. 3.018. ACTION AFTER REVOCATION
Sec. 3.019. PRIOR EXEMPTION
Sec. 3.020. TRUST COMPANIES CHARTERED UNDER PRIOR LAW
Sec. 3.021. FOREIGN CORPORATIONS EXERCISING TRUST POWERS
Sec. 3.022. ACTIVITIES NOT REQUIRING CHARTER
[Sections 3.023-3.100 reserved for expansion]
SUBCHAPTER B. AMENDMENT OF ARTICLES; CHANGES IN CAPITAL AND
SURPLUS
Sec. 3.101. AMENDMENT OR RESTATEMENT OF STATE TRUST COMPANY
ARTICLES OF ASSOCIATION
Sec. 3.102. ESTABLISHING SERIES OF SHARES OR PARTICIPATION
SHARES
Sec. 3.103. CHANGE IN RESTRICTED CAPITAL
Sec. 3.104. CAPITAL NOTES OR DEBENTURES
Sec. 3.105. BOARD DESIGNATION OF CERTIFIED SURPLUS
[Sections 3.106-3.200 reserved for expansion]
SUBCHAPTER C. STATE TRUST COMPANY OFFICES
Sec. 3.201. CONDUCT OF TRUST BUSINESS
Sec. 3.202. HOME OFFICE
Sec. 3.203. ADDITIONAL OFFICES
[Sections 3.204-3.300 reserved for expansion]
SUBCHAPTER D. MERGER
Sec. 3.301. MERGER AUTHORITY
Sec. 3.302. MERGER APPLICATION; GROUNDS FOR APPROVAL
Sec. 3.303. APPROVAL OF BANKING COMMISSIONER
Sec. 3.304. RIGHTS OF DISSENTERS TO MERGER
[Sections 3.305-3.400 reserved for expansion]
SUBCHAPTER E. PURCHASE OR SALE OF ASSETS
Sec. 3.401. AUTHORITY TO PURCHASE ASSETS OF ANOTHER TRUST
COMPANY
Sec. 3.402. AUTHORITY TO ACT AS DISBURSING AGENT
Sec. 3.403. LIQUIDATION OF SELLING INSTITUTION
Sec. 3.404. PAYMENT TO CREDITORS
Sec. 3.405. SALE OF ASSETS
[Sections 3.406-3.500 reserved for expansion]
SUBCHAPTER F. STATE TRUST REGULATORY SYSTEM:
EXIT OF STATE TRUST COMPANY
Sec. 3.501. MERGER, REORGANIZATION, OR CONVERSION OF STATE TRUST
COMPANY INTO NATIONAL BANK EXERCISING FIDUCIARY
POWERS
CHAPTER 3. POWERS; ORGANIZATION AND ORGANIZATIONAL CHANGES;
CAPITAL AND SURPLUS
SUBCHAPTER A. ORGANIZATION PROVISIONS; GENERAL PROVISIONS
Sec. 3.001. ORGANIZATION AND POWERS OF STATE TRUST COMPANY. (a) Subject to the other provisions of this chapter, one or more persons may organize and charter a state trust company as a state trust association or a limited trust association. A state trust company may perform any act as a fiduciary that a state bank or national bank exclusively exercising trust powers may perform under the laws of this state, including:
(1) acting as trustee under a written agreement;
(2) receiving money and other property in its capacity as trustee for investment in real or personal property;
(3) acting as trustee and performing the fiduciary duties committed or transferred to it by order of a court of competent jurisdiction;
(4) acting as executor, administrator, or trustee of the estate of a deceased person;
(5) acting as a custodian, guardian, conservator, or trustee for a minor or incapacitated person;
(6) acting as a successor fiduciary to a depository institution;
(7) receiving for safekeeping personal property;
(8) acting as custodian, assignee, transfer agent, escrow agent, registrar, or receiver;
(9) acting as investment advisor, agent, or attorney in fact according to an applicable agreement;
(10) exercising additional powers expressly conferred by rule of the finance commission; and
(11) exercising any incidental power that is reasonably necessary to enable it to fully exercise the powers expressly conferred according to commonly accepted fiduciary customs and usages.
(b) Subject to Section 3.008 of this Act, a state trust company may exercise the powers of a Texas business corporation reasonably necessary to enable exercise of its specific powers under this Act.
(c) A state trust company may contribute to a community fund or to a charitable, philanthropic, or benevolent instrumentality conducive to public welfare amounts that its board considers appropriate and in the interests of the trust company.
(d) Subject to Section 5.401 of this Act, a state trust company may deposit trust funds with itself.
(e) A state trust company insured by the Federal Deposit Insurance Corporation may receive and pay deposits, with or without interest, made by an agency of the United States Government, the state, a county, or a municipality.
Sec. 3.002. ARTICLES OF ASSOCIATION OF STATE TRUST COMPANY. The articles of association of a state trust company must be signed and acknowledged by each organizer and must contain:
(1) the name of the state trust company, except that the banking commissioner may determine that a proposed name is potentially misleading to the public and require the organizers to select a different name;
(2) the period of the state trust company's duration, which may be perpetual;
(3) the powers of the state trust company, which may be stated as:
(A) all powers granted to a state trust company in this state; or
(B) a list of the specific powers that the state trust company chooses and is authorized to exercise;
(4) the aggregate number of shares, or participation shares in the case of a limited trust association, that the state trust company will be authorized to issue, the number of classes of shares or participation shares, which may be one or more, the number of shares or participation shares of each class if more than one class, and a statement of the par value of the shares or participation shares of each class or that the shares or participation shares are to be without par value;
(5) if the shares or participation shares are to be divided into classes, the designation of each class and statement of the preferences, limitations, and relative rights of the shares or participation shares of each class, which in the case of a limited trust association may be more fully set forth in the participation agreement;
(6) any provision limiting or denying to shareholders or participants the preemptive right to acquire additional or treasury shares or participation shares of the state trust company;
(7) any provision granting the right of shareholders or participants to cumulative voting in the election of directors or managers;
(8) the aggregate amount of consideration to be received for all shares or participation shares initially issued by the state trust company, and a statement that all authorized shares or participation shares have been subscribed and that all subscriptions received provide for the consideration to be fully paid in cash before issuance of the charter;
(9) any provision consistent with law that the organizers elect to set forth in the articles of association for the regulation of the internal affairs of the state trust company or that is otherwise required by this Act to be set forth in the articles of association;
(10) the street address of the state trust company's home office required to be maintained under Section 3.202 of this Act; and
(11) the number of directors or managers constituting the initial board, which may not be fewer than five or more than 25, and the names and street addresses of the persons who are to serve as directors or managers until the first annual meeting of shareholders or participants or until successor directors or managers have been elected and qualified; or, at the option of the organizers of a limited trust association that will have not fewer than five or more than 25 participants, a statement that management is vested in a board comprised of all participants, with management authority vested in each participant in proportion to the participant's contribution to capital as adjusted from time to time to properly reflect any additional contribution, and the names and street addresses of the persons who are to be the initial managing participants.
Sec. 3.003. APPLICATION FOR STATE TRUST COMPANY CHARTER. (a) An application for a state trust company charter must be made under oath and in the form required by the banking commissioner and must be supported by information, data, records, and opinions of counsel that the banking commissioner requires. The application must be accompanied by all charter fees and deposits required by statute or rule.
(b) The banking commissioner shall grant a state trust company charter only on proof satisfactory to the banking commissioner that public convenience and advantage will be promoted by the establishment of the state trust company. In determining whether public convenience and advantage will be promoted, the banking commissioner shall consider:
(1) the convenience of the public to be served;
(2) whether the organizational and capital structure and amount of initial capitalization is adequate for the business and location;
(3) whether the anticipated volume and nature of business indicates a reasonable probability of success and profitability based on the market sought to be served;
(4) whether the proposed officers, directors, and managers, or managing participants, as a group have sufficient fiduciary experience, ability, standing, competence, trustworthiness, and integrity to justify a belief that the state trust company will operate in compliance with law and that success of the state trust company is probable;
(5) whether each principal shareholder or participant has sufficient experience, ability, standing, competence, trustworthiness, and integrity to justify a belief that the state trust company will be free from improper or unlawful influence or interference with respect to the state trust company's operation in compliance with law; and
(6) whether the organizers are acting in good faith.
(c) The organizers bear the burden of proof to establish that public convenience and advantage will be promoted by the establishment of the state trust company. The failure of an applicant to furnish required information, data, opinions of counsel, and other material, or the required fee, is considered an abandonment of the application.
Sec. 3.004. NOTICE AND INVESTIGATION OF CHARTER APPLICATION. (a) The banking commissioner shall notify the organizers when the application is complete and accepted for filing and all required fees and deposits have been paid. Promptly after this notification, the organizers shall publish notice of the application and solicit comments and protests, in the form specified by the banking commissioner, in a newspaper of general circulation in the county where the initial home office of the proposed state trust company is to be located. The banking commissioner may require the organizers to publish the notice at other locations reasonably necessary to solicit the views of potentially affected persons.
(b) At the expense of the organizers, the banking commissioner shall thoroughly investigate the application and inquire fully into the identity and character of each proposed director, manager, officer, managing participant, and principal shareholder or participant. The banking commissioner shall prepare a written report of the investigation, and any person, other than a person protesting under Section 3.005 of this Act, may request a copy of the nonconfidential portions of the application and written report as provided by Chapter 552, Government Code. Rules adopted under this Act may specify the confidential or nonconfidential character of information obtained by the department under this section. Except as provided by Subchapter B, Chapter 2, of this Act, or in rules regarding confidential information, the financial statement of a proposed officer, director, manager, or managing participant is confidential and not subject to public disclosure.
Sec. 3.005. HEARING AND DECISION ON CHARTER APPLICATION. (a) Any person may file a protest of an application with the banking commissioner.
(b) If a protest of the application is not filed on or before the 15th day after the last date the notice was published under Section 3.004 of this Act, the banking commissioner may immediately determine whether all of the necessary conditions set forth in Section 3.003(b) of this Act have been established, based on the application and investigation. The banking commissioner shall approve the application for charter or set the charter application for hearing.
(c) If a protest of the application is timely filed, accompanied by the fees and deposits required by statute or rule, or if the banking commissioner sets a hearing, the banking commissioner shall conduct a public hearing and as many prehearing conferences and opportunities for discovery as the banking commissioner considers advisable and consistent with governing statutes and rules. A person protesting the application is entitled to the confidential portions of the application under a protective order that restricts the use of confidential information to the charter proceedings.
(d) Based on the record of the hearing, the banking commissioner shall determine whether all of the necessary conditions set forth in Section 3.003(b) of this Act have been established and shall enter an order granting or denying the charter. The banking commissioner may make approval of any application conditional and shall include any conditions in the order granting the charter.
(e) Chapter 2001, Government Code, does not apply to a charter application filed for the purpose of assuming all or any portion of the assets, liabilities, and accounts of any depository institution or state trust company considered by the banking commissioner to be in hazardous condition.
Sec. 3.006. ISSUANCE OF CHARTER. (a) A state trust company may not engage in the trust business until it receives its charter from the banking commissioner. The banking commissioner may not deliver the charter until the state trust company has:
(1) received cash in at least the full amount of restricted capital from subscriptions for the issuance of shares or participation shares;
(2) elected or qualified the initial officers and directors or managers, as appropriate, named in the application for charter or other officers and directors or managers approved by the banking commissioner; and
(3) complied with all other requirements of this Act relating to the organization of the state trust company.
(b) If a state trust company does not open and engage in the trust business within six months after the date it receives its charter or conditional approval of application for charter, the banking commissioner may revoke the charter or cancel the conditional approval of application for charter without judicial action.
Sec. 3.007. RESTRICTED CAPITAL. (a) The banking commissioner may not issue a charter to a state trust company having restricted capital of less than $1 million.
(b) The banking commissioner may, on a case-by-case basis, require additional restricted capital for a proposed or existing state trust company if the banking commissioner finds the condition and operations of the existing state trust company or the proposed scope or type of operations of the proposed state trust company requires additional restricted capital to protect the safety and soundness of the trust company. The safety and soundness factors to be considered by the banking commissioner in the exercise of discretion, include:
(1) the nature and type of business the state trust company conducts;
(2) the nature and degree of liquidity in assets held in a corporate capacity;
(3) the amount, type, and depository of fiduciary assets that the state trust company manages;
(4) the complexity of the state trust company's fiduciary duties and degree of discretion undertaken;
(5) the competence and experience of the state trust company's management;
(6) the extent and adequacy of internal controls maintained by the state trust company;
(7) the presence or absence of annual unqualified audits by an independent certified public accountant;
(8) the reasonableness of the state trust company's business plans for retaining or acquiring additional restricted capital; and
(9) the existence and adequacy of insurance obtained or held by the state trust company to protect its clients, beneficiaries, and grantors.
(c) The effective date of any order under Subsection (b) of this section must be stated in the order and must be on or after the 21st day after the date the order is mailed or delivered. Unless the state trust company requests a hearing before the banking commissioner in writing before the effective date of the order, the order takes effect and is final and nonappealable. This subsection does not prohibit an application to reduce capital requirements of an existing state trust company under Subsection (e) of this section or under Section 3.011 of this Act.
(d) Subject to Subsection (e) of this section and Section 3.011 of this Act, a state trust company to which the banking commissioner issues a charter shall at all times maintain restricted capital in at least the amount required under Subsection (a) of this section and in any additional amount the banking commissioner requires under Subsection (b) of this section.
(e) Notwithstanding Subsection (a) of this section, on application, the banking commissioner may, on a case-by-case basis in the exercise of discretion, reduce the amount of minimum restricted capital required for a state trust company in a manner consistent with protecting the company's safety and soundness. In making a determination under this subsection, the banking commissioner shall consider the factors listed by Subsection (b) of this section.
Sec. 3.008. APPLICATION OF LAWS RELATING TO GENERAL BUSINESS CORPORATIONS. (a) The Texas Business Corporation Act and the Texas Miscellaneous Corporation Laws Act (Article 1302-1.01 et seq., Vernon's Texas Civil Statutes) are incorporated into this chapter and apply to a state trust company as if they were part of this Act to the extent not inconsistent with this Act or the proper business of a state trust company, except that:
(1) a reference to the secretary of state means the banking commissioner unless the context requires otherwise; and
(2) the right of shareholders or participants to cumulative voting in the election of directors or managers exists only if granted by the state trust company's articles of association.
(b) Unless expressly authorized by this Act or a rule of the finance commission, a state trust company may not take an action authorized by the Texas Business Corporation Act regarding its corporate status, capital structure, or a matter of corporate governance, of the type for which the Texas Business Corporation Act would require a filing with the secretary of state if the state trust company were a business corporation, without submitting the filing to the banking commissioner for prior written approval of the action.
(c) The finance commission may adopt rules to alter or supplement the procedures and requirements of the Texas Business Corporation Act or the Texas Miscellaneous Corporation Laws Act applicable to an action taken under this chapter by a state trust company.
(d) This chapter may not be construed to mean that a state trust company is a corporation incorporated under or governed by the Texas Business Corporation Act or the Texas Miscellaneous Corporation Laws Act.
Sec. 3.009. BANKING COMMISSIONER HEARINGS. (a) This section does not grant a right to hearing to a person that is not otherwise granted by governing law.
(b) The banking commissioner may convene a hearing to receive evidence and argument regarding any matter before the banking commissioner for decision or review under this Act. The hearing must be conducted under Chapter 2001, Government Code.
(c) A hearing before the banking commissioner that is required or authorized by law may be conducted by a hearing officer on behalf of the banking commissioner. A matter made confidential by law must be considered by the banking commissioner in a closed hearing.
Sec. 3.010. FINANCE COMMISSION HEARINGS; APPEALS. (a) Except as expressly provided otherwise by this Act, a decision or order of the banking commissioner made under this Act after hearing may be appealed directly to a district court of Travis County as provided by Subsection (c) of this section or, at the option of the appellant, to the finance commission for review.
(b) The finance commission shall consider the questions raised by the application for review and may also consider additional matters pertinent to the appeal. An order of the banking commissioner continues in effect pending review unless the order is stayed by the finance commission. The finance commission may impose any condition before granting a stay of the appealed order. The finance commission may not be required to accept additional evidence or hold an evidentiary hearing if a hearing was held and a record made before the banking commissioner. The finance commission shall remand the proceeding to the banking commissioner to receive any additional evidence the finance commission chooses to consider. A hearing before the finance commission that is required or authorized by law may be conducted by a hearing officer on behalf of the finance commission. A matter made confidential by law must be considered by the finance commission in a closed hearing.
(c) A person affected by a final order of the banking commissioner who elects to appeal directly to district court, or a person affected by a final order of the finance commission under this section, may appeal the final order by filing a petition for judicial review under the substantial evidence rule in a district court of Travis County as provided by Chapter 2001, Government Code. A petition for appeal filed in the district court does not stay or vacate the appealed order unless the court, after notice and hearing, expressly stays or vacates the order.
Sec. 3.011. EXEMPTION. (a) A state trust company may request in writing that it be exempted from specified provisions of this Act. The banking commissioner may grant the exemption in whole or in part if the banking commissioner finds that the state trust company does not transact business with the public. A state trust company does not transact business with the public if it does not make any sale, solicitation, arrangement, agreement, or transaction to provide a trust or other business service, whether or not for a fee, commission, or any other type of remuneration, with:
(1) an individual who is not related within the fourth degree of affinity or consanguinity to an individual who controls the state trust company; or
(2) a sole proprietorship, partnership, joint venture, association, trust, estate, business trust, or corporation that is not wholly owned by one or more individuals related within the fourth degree of affinity or consanguinity to an individual who controls the state trust company.
(b) At the expense of a state trust company, the banking commissioner may examine or investigate the state trust company in connection with an application for exemption. Unless the application presents novel or unusual questions, the banking commissioner shall approve the application for exemption or set the application for hearing not later than the 61st day after the date the banking commissioner considers the application complete and accepted for filing. The banking commissioner may require the submission of additional information as considered necessary to an informed decision.
(c) An exemption granted under this section may be made subject to conditions or limitations imposed by the banking commissioner consistent with this Act.
(d) A state trust company that is or has been exempt from a provision of this Act under this section or a predecessor statute may not transact business with the public unless the banking commissioner determines, as provided by Section 3.003 of this Act, that public convenience and advantage will be promoted by permitting the state trust company to engage in the trust business.
(e) The finance commission may adopt rules:
(1) defining other circumstances under which a state trust company may be exempted from a provision of this Act because it does not transact business with the public;
(2) specifying the provisions of this Act that are subject to an exemption request; and
(3) establishing procedures and requirements for obtaining, maintaining, or revoking an exemption.
Sec. 3.012. APPLICATION FOR EXEMPTION. (a) A state trust company requesting an exemption under Section 3.011 of this Act shall file an application with the banking commissioner including:
(1) a nonrefundable application fee set by the finance commission;
(2) a detailed sworn statement showing the state trust company's assets and liabilities as of the end of the calendar month previous to the filing of the application;
(3) a sworn statement of the reason for requesting the exemption;
(4) a sworn statement that the state trust company is not transacting business with the public and that the company will not transact business with the public without the prior written permission of the banking commissioner;
(5) the current street mailing address and telephone number of the physical location in this state at which the state trust company will maintain its books and records, with a sworn statement that the address given is true and correct and is not a United States Postal Service post office box or a private mail box, postal box, or mail drop; and
(6) a list of the specific provisions of this Act for which the request for exemption is made.
(b) The banking commissioner may not approve a state trust company exemption unless the application is completed as required by Subsection (a) of this section.
Sec. 3.013. ANNUAL CERTIFICATION. Before June 30 of each year, an exempt state trust company shall file a certification that it is maintaining the conditions and limitations of its exemption on a form provided by the banking commissioner. The certification must be accompanied by a fee set by the finance commission. The certification is not valid unless it bears an acknowledgment stamped by the department. The department shall return a copy of the acknowledged annual certification to the state trust company not later than the 30th day after the date the certification is filed. The state trust company shall notify the department of any failure to return an acknowledged copy of any annual certification within this period. The banking commissioner may examine or investigate the state trust company periodically as necessary to verify the certification.
Sec. 3.014. LIMITATION ON EFFECT OF EXEMPTION. (a) An exempt state trust company shall comply with the home office provisions of Section 3.202 of this Act.
(b) The granting of an exemption to a state trust company does not affect the state trust company's obligation to pay any corporate franchise tax required by state law.
Sec. 3.015. CHANGE OF CONTROL. Control of an exempt state trust company may not be sold or transferred with exempt status. If control of an exempt state trust company is transferred, the acquiring person must comply with Sections 3.003, 3.004, 3.005, and 4.001 of this Act and the exempt status of the state trust company automatically terminates on the effective date of the transfer. The acquiring person must file a separate application to obtain an exemption under this Act.
Sec. 3.016. GROUNDS FOR REVOCATION OF EXEMPTION. The banking commissioner may revoke an exemption of a state trust company if the trust company:
(1) makes a false statement under oath on any document required to be filed by this Act or finance commission rule;
(2) fails to submit to an examination as required by Section 2.002 of this Act;
(3) withholds requested information from the banking commissioner; or
(4) violates any provision of this Act applicable to an exempt state trust company.
Sec. 3.017. NOTICE AND EFFECT OF REVOCATION OF EXEMPTION. If the banking commissioner determines from examination or other credible evidence that an exempt state trust company has violated any of the requirements of this subchapter relating to an exempt state trust company, the banking commissioner may by personal delivery or registered or certified mail, return receipt requested, notify the state trust company in writing that the state trust company's exemption has been revoked. The notice must state grounds for the revocation with reasonable certainty. The notice must state its effective date, which may not be before the fifth day after the date the notification is mailed or delivered. The revocation takes effect for the state trust company if the state trust company does not request a hearing in writing before the effective date. After taking effect the revocation is final and nonappealable as to that state trust company, and the state trust company is subject to all of the requirements and provisions of the Act applicable to nonexempt state trust companies.
Sec. 3.018. ACTION AFTER REVOCATION. (a) A state trust company shall have five days after the date the revocation takes effect to comply with all of the provisions of Sections 3.003(b) and (c). If, however, the banking commissioner determines at the time of revocation that the state trust company has been engaging in or attempting to engage in acts intended or designed to deceive or defraud the public, the banking commissioner, in the banking commissioner's sole discretion, may waive this compliance period.
(b) If the state trust company does not comply with all of the provisions of this Act, including capitalization requirements determined by the banking commissioner as necessary to assure the safety and soundness of the state trust company, within the prescribed period, the banking commissioner may:
(1) institute any action or remedy prescribed by this Act or any applicable rule; or
(2) refer the state trust company to the attorney general for institution of a quo warranto proceeding to revoke the state trust company's charter.
Sec. 3.019. PRIOR EXEMPTION. A state trust company that was exempt under a predecessor to this Act is considered exempt under this Act.
Sec. 3.020. TRUST COMPANIES CHARTERED UNDER PRIOR LAW. The charter of a corporation with trust powers incorporated under any laws of this state before May 25, 1987, is void if the charter was not presented to the department before May 26, 1988, for substitution of a charter or if the department did not issue a new substitution charter before May 26, 1989.
Sec. 3.021. FOREIGN CORPORATIONS EXERCISING TRUST POWERS. (a) A foreign corporation may not conduct a trust business in this state. A foreign corporation may control a state trust company in this state, if the state trust company is formed or acquired and operated as provided by this Act and applicable rules.
(b) A foreign corporation or other entity chartered or domiciled in another jurisdiction as a trust company or depository institution with trust powers may act as a trustee in this state only as provided by Section 105A, Texas Probate Code.
Sec. 3.022. ACTIVITIES NOT REQUIRING CHARTER. A company does not engage in the trust business in a manner requiring a state charter by:
(1) acting in a manner authorized by law and in the scope of authority as an agent of a state trust company;
(2) rendering a service customarily performed as an attorney in a manner approved and authorized by the Supreme Court of Texas or State Bar of Texas;
(3) acting as trustee under a deed of trust made only as security for the payment of money or for the performance of another act;
(4) conducting a trust business under a charter that authorizes the exercise of trust powers as a depository institution, if the exercise of trust powers in this state by the depository institution is not otherwise prohibited by law;
(5) engaging in a business regulated by the Office of Consumer Credit Commissioner, except as limited by rules adopted by the finance commission;
(6) receiving and distributing rents and proceeds of sale as a licensed real estate broker on behalf of a principal in a manner authorized by the Texas Real Estate Commission;
(7) engaging in a securities transaction or providing an investment advisory service as a licensed and registered dealer, salesman, or advisor to the extent that the activity is regulated by the State Securities Board or the Securities and Exchange Commission;
(8) engaging in the sale and administration of an insurance product by an insurance company or agent licensed by the Texas Department of Insurance to the extent that the activity is regulated by the Texas Department of Insurance;
(9) engaging in the lawful sale of prepaid funeral benefits under a permit issued by the banking commissioner under Chapter 512, Acts of the 54th Legislature, Regular Session, 1955 (Article 548b, Vernon's Texas Civil Statutes);
(10) engaging in the lawful business of a perpetual care cemetery corporation under Chapter 712, Health and Safety Code;
(11) engaging in the lawful sale of checks under a license issued by the banking commissioner under The Sale of Checks Act (Article 489d, Vernon's Texas Civil Statutes);
(12) acting as trustee under a voting trust as provided by Article 2.30, Texas Business Corporation Act;
(13) acting as trustee by a public, private, or independent institution of higher education or a university system, as defined by Section 61.003, Education Code, including an affiliated foundation or corporation of such an institution or system acting as trustee as provided by the Education Code;
(14) engaging in another activity expressly excluded from the application of this Act by rule of the finance commission;
(15) rendering services customarily performed by a certified accountant in a manner authorized by the Texas State Board of Public Accountancy;
(16) serving as trustee of a charitable trust as provided by Article 2.31, Texas Non-Profit Corporation Act (Article 1396-2.31, Vernon's Texas Civil Statutes);
(17) performing escrow or settlement services if licensed under Chapter 9, Insurance Code; or
(18) acting as a qualified intermediary in a tax deferred exchange under 26 U.S.C. Section 1031 and applicable regulations.
[Sections 3.023-3.100 reserved for expansion]
SUBCHAPTER B. AMENDMENT OF ARTICLES; CHANGES IN
CAPITAL AND SURPLUS
Sec. 3.101. AMENDMENT OR RESTATEMENT OF STATE TRUST COMPANY ARTICLES OF ASSOCIATION. (a) A state trust company that has been granted a certificate of authority under Section 3.006 of this Act or a predecessor statute may amend or restate its articles of association for any lawful purpose, including the creation of authorized but unissued shares or participation shares in one or more classes or series.
(b) An amendment authorizing the issuance of shares or participation shares in series must contain:
(1) the designation of each series and a statement of any variations in the preferences, limitations, and relative rights among series to the extent that the preferences, limitations, and relative rights are to be established in the articles of association; and
(2) a statement of any authority to be vested in the board to establish series and determine the preferences, limitations, and relative rights of each series.
(c) A limited trust association may not amend its articles of association to extend its period of existence for a perpetual period or for any period of years, unless the period of existence is expressly contingent on those events resulting in dissolution of the trust association under Section 4.207 of this Act.
(d) Amendment or restatement of the articles of association of a state trust company and approval of the board and shareholders or participants must be made or obtained in accordance with the Texas Business Corporation Act for the amendment or restatement of articles of incorporation, except as otherwise provided by this Act or rules adopted under this Act. The original and one copy of the articles of amendment or restated articles of association must be filed with the banking commissioner for approval. Unless the submission presents novel or unusual questions, the banking commissioner shall approve or reject the amendment or restatement not later than the 31st day after the date the banking commissioner considers the submission informationally complete and accepted for filing. The banking commissioner may require the submission of additional information as considered necessary to an informed decision to approve or reject any amendment or restatement of articles of association under this section.
(e) If the banking commissioner finds that the amendment or restatement conforms to law and any conditions imposed by the banking commissioner, and any required filing fee has been paid, the banking commissioner shall:
(1) endorse the face of the original and copy with the date of approval and the word "Approved";
(2) file the original in the department's records; and
(3) deliver a certified copy of the amendment or restatement to the state trust company.
(f) An amendment or restatement, if approved, takes effect on the date of approval, unless the amendment or restatement provides for a different effective date.
Sec. 3.102. ESTABLISHING SERIES OF SHARES OR PARTICIPATION SHARES. (a) If the articles of association expressly give the board authority to establish series and determine the preferences, limitations, and relative rights of each series, the board may do so only on compliance with this section and any rules adopted under this chapter.
(b) A series of shares or participation shares may be established in the manner provided by the Texas Business Corporation Act as if a state trust company were a domestic corporation, but the shares or participation shares of the series may not be issued and sold except on compliance with Section 3.103 of this Act. The state trust company shall file the original and one copy of the statement of action required by the Texas Business Corporation Act with the banking commissioner. Unless the submission presents novel or unusual questions, the banking commissioner shall approve or reject the series not later than the 31st day after the date the banking commissioner considers the submission informationally complete and accepted for filing. The banking commissioner may require the submission of additional information as considered necessary to an informed decision.
(c) If the banking commissioner finds that the interests of the clients and creditors of the state trust company will not be adversely affected by the series, that the series otherwise conforms to law and any conditions imposed by the banking commissioner, and that any required filing fee has been paid, the banking commissioner shall:
(1) endorse the face of the original and copy of the statement with the date of approval and the word "Approved";
(2) file the original in the department's records; and
(3) deliver a certified copy of the statement to the trust company.
Sec. 3.103. CHANGE IN RESTRICTED CAPITAL. (a) A state trust company may not reduce or increase its restricted capital through dividend, redemption, issuance of shares or participation shares, or otherwise without the prior approval of the banking commissioner, except as permitted by this section or rules adopted under this chapter.
(b) Unless otherwise restricted by rules, prior approval is not required for an increase in restricted capital accomplished through:
(1) issuance of shares of common stock or their equivalent in participation shares for cash;
(2) declaration and payment of pro rata share dividends as defined by the Texas Business Corporation Act; or
(3) adoption by the board of a resolution directing that all or part of undivided profits be transferred to restricted capital.
(c) Prior approval is not required for a decrease in restricted capital caused by incurred losses in excess of undivided profits.
Sec. 3.104. CAPITAL NOTES OR DEBENTURES. (a) With the prior written approval of the banking commissioner, a state trust company may at any time through action of its board, and without requiring action of its shareholders or participants, issue and sell its capital notes or debentures. The notes or debentures must be subordinate to the claims of depositors and may be subordinate to other claims, including the claims of other creditors or classes of creditors or the shareholders or participants.
(b) Capital notes or debentures may be convertible into shares or participation shares of any class or series. The issuance and sale of convertible capital notes or debentures are subject to satisfaction of preemptive rights, if any, to the extent provided by law.
(c) Without the prior written approval of the banking commissioner, interest due or principal repayable on outstanding capital notes or debentures may not be paid by a state trust company when the state trust company is in hazardous condition or insolvent, as determined by the banking commissioner, or to the extent that payment will cause the state trust company to be in hazardous condition or insolvent.
(d) The amount of any outstanding capital notes or debentures that meet the requirements of this section and that are subordinated to unsecured creditors of the state trust company may be included in equity capital of the state trust company for purposes of determining hazardous condition or insolvency, and for such other purposes provided by rules adopted under this Act.
Sec. 3.105. BOARD DESIGNATION OF CERTIFIED SURPLUS. Periodically the board may vote to designate and record the amount of certified surplus in its minutes. Except to absorb losses in excess of undivided profits and uncertified surplus, certified surplus may not be reduced without the prior written approval of the banking commissioner.
[Sections 3.106-3.200 reserved for expansion]
SUBCHAPTER C. STATE TRUST COMPANY OFFICES
Sec. 3.201. CONDUCT OF TRUST BUSINESS. A state trust company may engage in the trust business at its home office and at other locations as permitted by this subchapter.
Sec. 3.202. HOME OFFICE. (a) Each state trust company must have and continuously maintain in this state a home office at which the state trust company does business and keeps its corporate books and records. At least one executive officer must maintain an office at the home office.
(b) Each officer at the home office is an agent for service of process for a state trust company.
(c) A state trust company may change its home office to any location in this state, if the location that is the home office before the change remains an office of the state trust company at which the state trust company does business. To change the location of its home office, the state trust company must file a written notice with the banking commissioner setting forth the name of the state trust company, the street address of its home office before the change, the street address to which the home office is to be changed, and a copy of the resolution adopted by the board authorizing the change. The change of home office takes effect on the 31st day after the date the banking commissioner receives the notice.
(d) A relocation of a state trust company's home office may not be made, or another action that would effect an abandonment of the state trust company's initial home office may not be taken, without the prior written approval of the banking commissioner. The state trust company must establish to the satisfaction of the banking commissioner that the abandonment is consistent with the original determination of public convenience and advantage for the establishment of a state trust company at that location.
Sec. 3.203. ADDITIONAL OFFICES. (a) A state trust company may establish and maintain additional offices anywhere in this state by filing a written notice with the banking commissioner setting forth the name of the state trust company, the street address of the proposed additional office, a description of the activities proposed to be conducted at the additional office, and a copy of the resolution adopted by the board authorizing the additional office.
(b) A state trust company may commence business at the additional office on the 31st day after the date the banking commissioner receives the notice, unless the banking commissioner specifies an earlier or later date. The banking commissioner may specify a later date on a determination that the written notice raises issues that require additional information or additional time for analysis. If a later date is specified, the state trust company may establish the additional office only on prior written approval by the banking commissioner. The banking commissioner may deny permission to establish an additional office of the state trust company if the banking commissioner has a significant supervisory or regulatory concern regarding the proposed additional office, the applicant, or an affiliate.
[Sections 3.204-3.300 reserved for expansion]
SUBCHAPTER D. MERGER
Sec. 3.301. MERGER AUTHORITY. (a) Subject to this subchapter and with the prior written approval of the banking commissioner, a state trust company may merge with another person to the same extent as a business corporation under the Texas Business Corporation Act.
(b) Implementation of the plan of merger by the parties and approval of the board, shareholders, participants, or owners of the parties must be made or obtained as provided by the Texas Business Corporation Act as if the state trust company were a domestic corporation and all other parties to the merger were foreign corporations and other entities, except as otherwise provided by rules adopted under this chapter.
Sec. 3.302. MERGER APPLICATION; GROUNDS FOR APPROVAL. (a) To apply for approval of a merger, the parties must submit the original articles of merger, a number of copies of the articles of merger equal to the number of surviving, new, and acquiring entities, and an application in the form required by the banking commissioner. The banking commissioner may require the submission of additional information as considered necessary to an informed decision.
(b) The banking commissioner shall investigate the condition of the merging parties.
(c) The banking commissioner may approve the merger if:
(1) each resulting state trust company will be solvent and have adequate capitalization for its business and location;
(2) each resulting state trust company has in all respects complied with the statutes and rules relating to the organization of a state trust company;
(3) all obligations and liabilities of each trust company that is a party to the merger have been properly discharged or otherwise lawfully assumed or retained by a trust company or other fiduciary;
(4) each surviving, new, or acquiring person that is not authorized to engage in the trust business will not engage in the trust business and has in all respects complied with the laws of this state; and
(5) all conditions imposed by the banking commissioner have been satisfied or otherwise resolved.
Sec. 3.303. APPROVAL OF BANKING COMMISSIONER. (a) If the banking commissioner approves the merger and finds that all required filing fees and investigative costs have been paid, the banking commissioner shall:
(1) endorse the face of the original and each copy of the articles of merger with the date of approval and the word "Approved";
(2) file the original in the department's records; and
(3) deliver a certified copy of the articles of merger to each surviving, new, or acquiring entity.
(b) A merger is effective on the date of approval, unless the merger agreement provides and the banking commissioner consents to a different effective date.
Sec. 3.304. RIGHTS OF DISSENTERS TO MERGER. A shareholder, participant, or participant-transferee may dissent from the merger to the extent and by following the procedure provided by the Texas Business Corporation Act or rules adopted under this Act.
[Sections 3.305-3.400 reserved for expansion]
SUBCHAPTER E. PURCHASE OR SALE OF ASSETS
Sec. 3.401. AUTHORITY TO PURCHASE ASSETS OF ANOTHER TRUST COMPANY. (a) A state trust company, with the prior written approval of the banking commissioner, may purchase all or substantially all of the assets of another regulated financial institution, including the right to control accounts established with the state trust company. Except as otherwise expressly provided by another statute, the purchase of all or part of the assets of the institution does not make the purchasing state trust company responsible for any liability or obligation of the selling institution that the purchasing state trust company does not expressly assume. Except as otherwise provided by this Act, this subchapter does not govern or prohibit the purchase by a state trust company of all or part of the assets of a corporation or other entity that is not a state trust company.
(b) To make a purchase under this section, an application in the form required by the banking commissioner must be filed with the banking commissioner. The banking commissioner shall investigate the condition of the purchaser and seller and may require the submission of additional information as considered necessary to make an informed decision. The banking commissioner shall approve the purchase if:
(1) the acquiring state trust company will be solvent and have sufficient capitalization for its business and location;
(2) the acquiring state trust company has complied with all applicable statutes and rules;
(3) all obligations and liabilities of each trust company that is a party to the purchase or sale of assets have been properly discharged or otherwise lawfully assumed or retained by a trust company or other fiduciary;
(4) all conditions imposed by the banking commissioner have been satisfied or otherwise resolved; and
(5) all fees and costs have been paid.
(c) A purchase is effective on the date of approval unless the purchase agreement provides for and the banking commissioner consents to a different effective date.
Sec. 3.402. AUTHORITY TO ACT AS DISBURSING AGENT. The purchasing state trust company may hold the purchase price and any additional funds delivered to it by the selling institution in trust for the selling institution and may act as agent of the selling institution in disbursing those funds in trust by paying the creditors of the selling institution. If the purchasing state trust company acts under written contract of agency approved by the banking commissioner that specifically names each creditor and the amount to be paid each, and if the agency is limited to the purely ministerial act of paying creditors the amounts due them as determined by the selling institution and reflected in the contract of agency and does not involve discretionary duties or authority other than the identification of the creditors named, the purchasing trust company:
(1) may rely on the contract of agency and the instructions included in it; and
(2) is not responsible for:
(A) any error made by the selling institution in determining its liabilities and creditors to whom the liabilities are due or the amounts due the creditors; or
(B) any preference that results from the payments made under the contract of agency and the instructions included in it.
Sec. 3.403. LIQUIDATION OF SELLING INSTITUTION. If the selling institution is at any time after the sale of assets voluntarily or involuntarily closed for liquidation by a state or federal regulatory agency, the purchasing state trust company shall pay to the receiver of the selling institution the balance of the money held by it in trust for the selling institution and not yet paid to the creditors of the selling institution. Without further action the purchasing state trust company is discharged of all responsibilities to the selling institution, its receiver, or its creditors, shareholders, participants, or participant-transferees.
Sec. 3.404. PAYMENT TO CREDITORS. Payment to a creditor of the selling institution of the amount to be paid the person under the terms of the contract of agency may be made by the purchasing state trust company by opening an agency account in the name of the creditor, crediting the account with the amount to be paid the creditor under the terms of the agency contract, and mailing or personally delivering a duplicate ticket evidencing the credit to the creditor at the creditor's address shown in the records of the selling institution. The relationship between the purchasing state trust company and the creditor is that of agent to creditor only to the extent of the credit reflected by the ticket.
Sec. 3.405. SALE OF ASSETS. (a) The board of a state trust company, with the banking commissioner's approval, may cause the state trust company to sell all or substantially all of its assets, including the right to control accounts established with the state trust company, without shareholder or participant approval if the banking commissioner finds:
(1) the interests of the state trust company's clients, depositors, and creditors are jeopardized because of the hazardous condition of the state trust company;
(2) the sale is in the best interest of the state trust company's clients, depositors, and creditors; and
(3) if the deposits of the state trust company are insured, the Federal Deposit Insurance Corporation or its successor approves the transaction.
(b) A sale under this section must include an assumption and promise by the buyer to pay or otherwise discharge:
(1) all of a state trust company's liabilities to clients and depositors;
(2) all of the state trust company's liabilities for salaries of the state trust company's employees incurred before the date of the sale;
(3) obligations incurred by the banking commissioner arising out of the supervision or sale of the state trust company; and
(4) fees and assessments due the department.
(c) This section does not limit the incidental power of a state trust company to buy and sell assets in the ordinary course of business.
(d) This section does not affect the banking commissioner's right to take action under another law. The sale by a state trust company of all or substantially all of its assets with shareholder or participant approval is considered a voluntary dissolution and liquidation and is governed by Subchapter B, Chapter 7, of this Act.
[Sections 3.406-3.500 reserved for expansion]
SUBCHAPTER F. STATE TRUST REGULATORY SYSTEM:
EXIT OF STATE TRUST COMPANY
Sec. 3.501. MERGER, REORGANIZATION, OR CONVERSION OF STATE TRUST COMPANY INTO NATIONAL BANK EXERCISING FIDUCIARY POWERS. (a) A state trust company may act as necessary under the laws of the United States or this state to merge, reorganize, or convert into a national bank exercising fiduciary powers.
(b) The merger, reorganization, or conversion must be made and approval of the state trust company's board, shareholders, or participants must be obtained in accordance with the Texas Business Corporation Act as if the state trust company were a domestic corporation and all other parties to the transaction, if any, were foreign corporations or other entities, except as may be otherwise provided by rules. For purposes of this subsection, a conversion is considered a merger into the successor national bank exercising fiduciary powers.
(c) The state trust company does not cease to be a state trust company subject to the supervision of the banking commissioner unless:
(1) the banking commissioner has been given written notice of the intention to merge, reorganize, or convert before the 31st day before the date of the proposed transaction;
(2) the state trust company has published notice of the transaction, in the form and frequency specified by the banking commissioner, in a newspaper of general circulation published in the county of its home office or, if such a newspaper is not published in the county, in an adjacent county and in other locations that the banking commissioner considers appropriate;
(3) the state trust company has filed with the banking commissioner:
(A) a copy of the application filed with the successor regulatory authority, including a copy of each contract evidencing or implementing the merger, reorganization, or conversion, or other documents sufficient to show compliance with applicable law;
(B) a certified copy of all minutes of board meetings and shareholder or participant meetings at which action was taken regarding the merger, reorganization, or conversion; and
(C) a publisher's certificate showing publication of the required notice;
(4) the banking commissioner determines that:
(A) all accounts and liabilities of the state trust company are fully discharged, assumed, or otherwise retained by the successor national bank exercising fiduciary powers;
(B) any conditions imposed by the banking commissioner for the protection of clients and creditors have been met or otherwise resolved; and
(C) any required filing fees have been paid; and
(5) the state trust company has received a certificate of authority to do business as a national bank exercising fiduciary powers.
CHAPTER 4. SHARES AND PARTICIPATION SHARES; SHAREHOLDERS AND
PARTICIPANTS; MANAGEMENT
SUBCHAPTER A. TRANSFER OF OWNERSHIP INTERESTS IN STATE
TRUST COMPANY
Sec. 4.001. ACQUISITION OF CONTROL
Sec. 4.002. APPLICATION REGARDING ACQUISITION OF CONTROL
Sec. 4.003. HEARING AND DECISION ON ACQUISITION OF CONTROL
Sec. 4.004. APPEAL FROM ADVERSE DECISION
Sec. 4.005. OBJECTION TO OTHER TRANSFER
Sec. 4.006. CIVIL ENFORCEMENT; CRIMINAL PENALTIES
[Sections 4.007-4.100 reserved for expansion]
SUBCHAPTER B. BOARD AND OFFICERS
Sec. 4.101. VOTING SECURITIES HELD BY TRUST COMPANY
Sec. 4.102. BYLAWS
Sec. 4.103. BOARD OF DIRECTORS, MANAGERS, OR MANAGING
PARTICIPANTS
Sec. 4.104. REQUIRED BOARD MEETINGS
Sec. 4.105. OFFICERS
Sec. 4.106. CERTAIN CRIMINAL OFFENSES
Sec. 4.107. TRANSACTIONS WITH MANAGEMENT AND AFFILIATES
Sec. 4.108. FIDUCIARY RESPONSIBILITY
Sec. 4.109. RECORDKEEPING
Sec. 4.110. BONDING REQUIREMENTS
Sec. 4.111. REPORTS OF APPARENT CRIME
[Sections 4.112-4.200 reserved for expansion]
SUBCHAPTER C. SPECIAL PROVISIONS FOR LIMITED TRUST ASSOCIATIONS
Sec. 4.201. FILING OF NOTICE OF FULL LIABILITY
Sec. 4.202. LIABILITY OF PARTICIPANTS AND MANAGERS
Sec. 4.203. CONTRACTING DEBTS AND OBLIGATIONS
Sec. 4.204. MANAGEMENT OF LIMITED TRUST ASSOCIATION
Sec. 4.205. WITHDRAWAL OR REDUCTION OF PARTICIPANT'S
CONTRIBUTION TO CAPITAL
Sec. 4.206. INTEREST IN LIMITED TRUST ASSOCIATION;
TRANSFERABILITY OF INTEREST
Sec. 4.207. DISSOLUTION
Sec. 4.208. ALLOCATION OF PROFITS AND LOSSES
Sec. 4.209. DISTRIBUTIONS
Sec. 4.210. OTHER PROVISIONS RELATED TO LIMITED TRUST
ASSOCIATIONS
CHAPTER 4. SHARES AND PARTICIPATION SHARES; SHAREHOLDERS AND
PARTICIPANTS; MANAGEMENT
SUBCHAPTER A. TRANSFER OF OWNERSHIP INTERESTS IN
STATE TRUST COMPANY
Sec. 4.001. ACQUISITION OF CONTROL. (a) Except as expressly permitted by this Act, a person may not without the prior written approval of the banking commissioner directly or indirectly acquire a legal or beneficial interest in voting securities of a state trust company or a corporation or other entity owning voting securities of the state trust company if, after the acquisition, the person would control the state trust company. For purposes of this subchapter and except as otherwise provided by rules adopted under this Act, the principal shareholder or principal participant of a state trust company that directly or indirectly owns or has the power to vote a greater percentage of voting securities of the state trust company than any other shareholder or participant is considered to control the state trust company.
(b) This subchapter does not prohibit a person from negotiating to acquire, but not acquiring, control of a state trust company or a person that controls a state trust company.
(c) This section does not apply to:
(1) the acquisition of securities in connection with the exercise of a security interest or otherwise in full or partial satisfaction of a debt previously contracted for in good faith if the acquiring person files written notice of acquisition with the banking commissioner before the person votes the securities acquired;
(2) the acquisition of voting securities in any class or series by a controlling person who has previously complied with and received approval under this subchapter or who was identified as a controlling person in a prior application filed with and approved by the banking commissioner;
(3) an acquisition or transfer by operation of law, will, or intestate succession if the acquiring person files written notice of acquisition with the banking commissioner before the person votes the securities acquired; or
(4) a transaction exempted by the banking commissioner or by rules adopted under this Act because the transaction is not within the purposes of this subchapter or the regulation of which is not necessary or appropriate to achieve the objectives of this subchapter.
Sec. 4.002. APPLICATION REGARDING ACQUISITION OF CONTROL. (a) An application for approval to acquire control of a state trust company or a person that controls a state trust company must be filed under oath by the transferee on a form prescribed by the banking commissioner and accompanied by any filing fee required by statute or rule. The application must contain all information required by rules adopted under this Act or that the banking commissioner requires in a particular application as necessary to an informed decision to approve or reject the acquisition.
(b) If a person or transferee proposing to acquire voting securities subject to this section includes a group of individuals or entities acting in concert, the information required by the banking commissioner may be required of each member of the group.
(c) Information obtained by the banking commissioner under this section is confidential and may not be disclosed by the banking commissioner or any employee of the department except as provided by Subchapter B, Chapter 2, of this Act.
(d) Promptly after the applicants are notified by the banking commissioner that the application is complete and accepted for filing, the applicants shall publish notice of the application, its date of filing, and the identity of each applicant, in the form specified by the banking commissioner, in a newspaper of general circulation in the county where the state trust company's home office is located. Publication of notice of an application filed in contemplation of a public tender offer subject to 15 U.S.C. Section 78n(d)(1) may be deferred for not more than 34 days after the date the application is filed if:
(1) the applicant requests confidential treatment and represents that a public announcement of the tender offer and the filing of appropriate forms with the Securities and Exchange Commission or the appropriate federal banking agency, as applicable, will occur within the period of deferral; and
(2) the banking commissioner determines that the public interest will not be harmed by the requested confidential treatment.
(e) The banking commissioner may waive the requirement that a notice be published or permit delayed publication on a determination that waiver or delay is in the public interest. If publication of notice is waived under this subsection, the information that would be contained in a published notice becomes public information under Chapter 552, Government Code, on the 35th day after the date the application is filed.
Sec. 4.003. HEARING AND DECISION ON ACQUISITION OF CONTROL. (a) Not later than the 60th day after the date the notice is published, the banking commissioner shall approve the application or set the application for hearing. If the banking commissioner sets a hearing, the department shall participate as the opposing party and the banking commissioner shall conduct a hearing and one or more prehearing conferences and opportunities for discovery as the banking commissioner considers advisable and consistent with governing statutes and rules. A hearing held under this section is confidential and closed to the public.
(b) Based on the record, the banking commissioner may issue an order denying an application if:
(1) the acquisition would substantially lessen competition, be in restraint of trade, result in a monopoly, or be in furtherance of a combination or conspiracy to monopolize or attempt to monopolize the trust industry in any part of this state, unless:
(A) the anticompetitive effects of the acquisition are clearly outweighed in the public interest by the probable effect of acquisition in meeting the convenience and needs of the community to be served; and
(B) the acquisition is not in violation of the law of this state or the United States;
(2) the financial condition of the transferee, or any member of a group comprising the transferee, might jeopardize the financial stability of the state trust company being acquired;
(3) plans or proposals to operate, liquidate, or sell the state trust company or its assets are not in the best interests of the state trust company;
(4) the experience, ability, standing, competence, trustworthiness, and integrity of the transferee, or any member of a group comprising the transferee, are insufficient to justify a belief that the state trust company will be free from improper or unlawful influence or interference with respect to the state trust company's operation in compliance with law;
(5) the state trust company will not be solvent, have adequate capitalization, or be in compliance with the laws of this state after the acquisition;
(6) the transferee has failed to furnish all information pertinent to the application reasonably required by the banking commissioner; or
(7) the transferee is not acting in good faith.
(c) If an application filed under this section is approved by the banking commissioner, the transaction may be consummated. Any written commitment from the transferee offered to and accepted by the banking commissioner as a condition that the application will be approved is enforceable against the state trust company and the transferee and is considered for all purposes an agreement under this Act.
Sec. 4.004. APPEAL FROM ADVERSE DECISION. (a) If a hearing has been held, the banking commissioner has entered an order denying the application, and the order has become final, the transferee may appeal the final order by filing a petition for judicial review under the substantial evidence rule in a district court of Travis County as provided by Chapter 2001, Government Code.
(b) The filing of an appeal under this section does not stay the order of the banking commissioner.
Sec. 4.005. OBJECTION TO OTHER TRANSFER. This subchapter does not prevent the banking commissioner from investigating, commenting on, or seeking to enjoin or set aside a transfer of voting securities that evidence a direct or indirect interest in a state trust company, regardless of whether the transfer is included within this subchapter, if the banking commissioner considers the transfer to be against the public interest.
Sec. 4.006. CIVIL ENFORCEMENT; CRIMINAL PENALTIES. (a) If the banking commissioner believes that a person has committed or is about to commit a violation of this subchapter or a rule or order of the banking commissioner pertaining to this subchapter, the attorney general on behalf of the banking commissioner may apply to a district court of Travis County for an order enjoining the violation and for other equitable relief the nature of the case requires.
(b) A person who knowingly fails or refuses to file the application required by Section 4.002 of this Act commits an offense. An offense under this subsection is a Class A misdemeanor.
[Sections 4.007-4.100 reserved for expansion]
SUBCHAPTER B. BOARD AND OFFICERS
Sec. 4.101. VOTING SECURITIES HELD BY TRUST COMPANY. (a) Voting securities of a state trust company held by the state trust company in a fiduciary capacity under a will or trust, whether registered in its own name or in the name of its nominee, may not be voted in the election of directors or managers or on a matter affecting the compensation of directors, managers, officers, or employees of the state trust company in that capacity, unless:
(1) under the terms of the will or trust, the manner in which the voting securities are to be voted may be determined by a donor or beneficiary of the will or trust and the donor or beneficiary actually makes the determination in the matter at issue;
(2) the terms of the will or trust expressly direct the manner in which the securities must be voted to the extent that no discretion is vested in the state trust company as fiduciary; or
(3) the securities are voted solely by a cofiduciary that is not an affiliate of the state trust company, as if the cofiduciary were the sole fiduciary.
(b) Voting securities of a state trust company that cannot be voted under this section are considered to be authorized but unissued for purposes of determining the procedures for and results of the affected vote.
Sec. 4.102. BYLAWS. (a) Each state trust company shall adopt bylaws and may amend its bylaws from time to time for the purposes and in accordance with the procedures set forth in the Texas Business Corporation Act.
(b) A limited trust association in which management is retained by the participants is not required to adopt bylaws if provisions required by law to be contained in the bylaws are contained in the articles of association or the participation agreement. If a limited trust association has adopted bylaws that designate each full liability participant, the limited trust association shall file with the banking commissioner a copy of the bylaws. Only the portion of the bylaws designating each full liability participant is a public record.
Sec. 4.103. BOARD OF DIRECTORS, MANAGERS, OR MANAGING PARTICIPANTS. (a) The board of a state trust company must consist of not fewer than five or more than 25 directors, managers, or managing participants, the majority of whom must be residents of this state. Except for a limited trust association in which management has been retained by its participants, the principal executive officer of the state trust company is a member of the board. The principal executive officer acting in the capacity of board member is the board's presiding officer unless the board elects a different presiding officer to perform the duties as designated by the board.
(b) Unless the banking commissioner consents otherwise in writing, a person may not serve as director, manager, or managing participant of a state trust company if:
(1) the state trust company incurs an unreimbursed loss attributable to a charged-off obligation of or holds a judgment against the person or an entity that was controlled by the person at the time of funding and at the time of default on the loan that gave rise to the judgment or charged-off obligation;
(2) the person has been convicted of a felony; or
(3) the person has violated, with respect to a trust under which the state trust company has fiduciary responsibility, Section 113.052 or 113.053(a), Property Code, relating to loan of trust funds and purchase or sale of trust property by the trustee, and the violation has not been corrected.
(c) If a state trust company other than a limited trust association operated by managing participants does not elect directors or managers before the 61st day after the date of its regular annual meeting, the banking commissioner may appoint a conservator under Chapter 6 of this Act to operate the state trust company and elect directors or managers, as appropriate. If the conservator is unable to locate or elect persons willing and able to serve as directors or managers, the banking commissioner may close the state trust company for liquidation.
(d) A vacancy on the board that reduces the number of directors, managers, or managing participants to fewer than five must be filled not later than the 30th day after the date the vacancy occurs. A limited trust association with fewer than five managing participants must add one or more new participants or elect a board of managers of not fewer than five persons to resolve the vacancy. After 30 days after the date the vacancy occurs, the banking commissioner may appoint a conservator under Chapter 6 of this Act to operate the state trust company and elect a board of not fewer than five persons to resolve the vacancy. If the conservator is unable to locate or elect five persons willing and able to serve as directors or managers, the banking commissioner may close the state trust company for liquidation.
(e) Before each term to which a person is elected to serve as a director or manager of a state trust company, or annually for a person who is a managing participant, the person shall submit an affidavit for filing in the minutes of the state trust company stating that the person, to the extent applicable:
(1) accepts the position and is not disqualified from serving in the position;
(2) will not violate or knowingly permit an officer, director, manager, managing participant, or employee of the state trust company to violate any law applicable to the conduct of business of the trust company; and
(3) will diligently perform the duties of the position.
(f) An advisory director or manager is not considered a director if the advisory director or manager:
(1) is not elected by the shareholders or participants of the state trust company;
(2) does not vote on matters before the board or a committee of the board and is not counted for purposes of determining a quorum of the board or committee; and
(3) provides solely general policy advice to the board.
Sec. 4.104. REQUIRED BOARD MEETINGS. The board of a state trust company shall hold at least one regular meeting each quarter. At each regular meeting the board shall review and approve the minutes of the prior meeting and review the operations, activities, and financial condition of the state trust company. The board may designate committees from among its members to perform these duties and approve or disapprove the committees' reports at each regular meeting. All actions of the board must be recorded in its minutes.
Sec. 4.105. OFFICERS. (a) The board shall annually appoint the officers of the state trust company, who serve at the pleasure of the board. The state trust company must have a principal executive officer primarily responsible for the execution of board policies and operation of the state trust company and an officer responsible for the maintenance and storage of all corporate books and records of the state trust company and for required attestation of signatures. These positions may not be held by the same person. The board may appoint other officers of the state trust company as the board considers necessary.
(b) Unless expressly authorized by a resolution of the board recorded in its minutes, an officer or employee may not create or dispose of a state trust company asset or create or incur a liability on behalf of the state trust company.
Sec. 4.106. CERTAIN CRIMINAL OFFENSES. (a) An officer, director, manager, managing participant, employee, shareholder, or participant of a state trust company commits an offense if the person knowingly:
(1) conceals information or a fact or removes, destroys, or conceals a book or record of the state trust company for the purpose of concealing information or a fact from the banking commissioner or an agent of the banking commissioner; or
(2) for the purpose of concealing, removes or destroys any book or record of the state trust company that is material to a pending or anticipated legal or administrative proceeding.
(b) An officer, director, manager, managing participant, or employee of a state trust company commits an offense if the person knowingly makes a false entry in the books or records or in any report or statement of the state trust company.
(c) An offense under this section is a felony of the third degree.
Sec. 4.107. TRANSACTIONS WITH MANAGEMENT AND AFFILIATES. (a) Without the prior approval of a disinterested majority of the board recorded in the minutes, or if a disinterested majority cannot be obtained the prior written approval of the banking commissioner, a state trust company may not directly or indirectly:
(1) sell or lease an asset of the state trust company to an officer, director, manager, managing participant, or principal shareholder or participant of the state trust company or an affiliate of the state trust company;
(2) purchase or lease an asset in which an officer, director, manager, managing participant, or principal shareholder or participant of the state trust company or an affiliate of the state trust company has an interest; or
(3) subject to Section 5.201 of this Act, extend credit to an officer, director, manager, managing participant, or principal shareholder or participant of the state trust company or an affiliate of the state trust company.
(b) Notwithstanding Subsection (a) of this section, a lease transaction described in Subsection (a)(2) of this section involving real property may not be consummated, renewed, or extended without the prior written approval of the banking commissioner. For purposes of this subsection only, an affiliate of a state trust company does not include a subsidiary of the state trust company.
(c) Subject to Section 5.201 of this Act, a state trust company may not directly or indirectly extend credit to an employee, officer, director, manager, managing participant, or principal shareholder or participant of the state trust company or an affiliate of the state trust company, unless the extension of credit:
(1) is made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions by the state trust company with persons who are not employees, officers, directors, managers, managing participants, principal shareholders, participants, or affiliates of the state trust company;
(2) does not involve more than the normal risk of repayment or present other unfavorable features; and
(3) the state trust company follows credit underwriting procedures that are not less stringent than those applicable to comparable transactions by the state trust company with persons who are not employees, officers, directors, managers, managing participants, principal shareholders, participants, or affiliates of the state trust company.
(d) An officer, director, manager, or managing participant of a state trust company who knowingly participates in or permits a violation of this section commits an offense. An offense under this subsection is a felony of the third degree.
(e) The finance commission may adopt rules to administer and carry out this section, including rules to establish limits, requirements, or exemptions other than those specified by this section for particular categories of transactions.
Sec. 4.108. FIDUCIARY RESPONSIBILITY. The board of a state trust company is responsible for the proper exercise of fiduciary powers by the state trust company and each matter pertinent to the exercise of fiduciary powers, including:
(1) the determination of policies;
(2) the investment and disposition of property held in a fiduciary capacity; and
(3) the direction and review of the actions of each officer, employee, and committee used by the state trust company in the exercise of its fiduciary powers.
Sec. 4.109. RECORDKEEPING. A state trust company shall keep its fiduciary records separate and distinct from other records of the state trust company in compliance with the rules adopted under this Act. The fiduciary records must contain all appropriate material information relative to each account.
Sec. 4.110. BONDING REQUIREMENTS. (a) The board of a state trust company shall require a bond for protection and indemnity of clients, in reasonable amounts established by rules adopted under this chapter, against dishonesty, fraud, defalcation, forgery, theft, and other similar insurable losses with a corporate insurance or surety company:
(1) authorized to do business in this state; or
(2) acceptable to the banking commissioner and otherwise lawfully permitted to issue the coverage against those losses in this state.
(b) Except as otherwise provided by rule, a bond is required to cover each director, manager, managing participant, officer, and employee of a state trust company without regard to whether the person receives salary or other compensation.
(c) A state trust company may apply to the banking commissioner for permission to eliminate the bonding requirement of this section for a particular individual. The banking commissioner shall approve the application if the banking commissioner finds that the bonding requirement is unnecessary or burdensome. Unless the application presents novel or unusual questions, the banking commissioner shall approve the application or set the application for hearing not later than the 61st day after the date the banking commissioner considers the application complete and accepted for filing.
Sec. 4.111. REPORTS OF APPARENT CRIME. (a) A state trust company that is the victim of a robbery, has a shortage of corporate or fiduciary funds in excess of $5,000, or is the victim of an apparent or suspected misapplication of its corporate or fiduciary funds or property in any amount by a director, manager, managing participant, officer, or employee shall report such robbery, shortage, or apparent or suspected misapplication to the banking commissioner within 48 hours after the time it is discovered. The initial report may be oral if the report is promptly confirmed in writing. The state trust company or a director, manager, managing participant, officer, employee, or agent is not subject to liability for defamation or another charge resulting from information supplied in the report.
(b) A trust report filed with the banking commissioner under this section may be a copy of a written report filed with an appropriate federal agency.
[Sections 4.112-4.200 reserved for expansion]
SUBCHAPTER C. SPECIAL PROVISIONS FOR LIMITED TRUST ASSOCIATIONS
Sec. 4.201. FILING OF NOTICE OF FULL LIABILITY. (a) A limited trust association shall file with the banking commissioner a copy of any participation agreement by which a participant of the limited trust association agrees to become a full liability participant and the name and address of each full liability participant. Only the portion of the filed copy containing the designation of each full liability participant is a public record.
(b) The banking commissioner may require a complete copy of the participation agreement to be filed with the department, regardless of whether a state trust company has a full liability participant, except that the provisions of the participation agreement other than those by which a participant of the limited trust association agrees to become a full liability participant are confidential and subject to release only as provided by Subchapter B, Chapter 2, of this Act.
Sec. 4.202. LIABILITY OF PARTICIPANTS AND MANAGERS. (a) Except as provided by Subsection (b) of this section, the participants, participant-transferees, and managers of a limited trust association may not be held liable for a debt, obligation, or liability of the limited trust association, including a debt, obligation, or liability under a judgment, decree, or order of court. A participant, other than a full liability participant, or a manager of a limited trust association is not a proper party to proceedings by or against a limited trust association, unless the object of the proceeding is to enforce a participant's or manager's right against or liability to a limited trust association.
(b) A full liability participant of a limited trust association is liable under a judgment, decree, or order of court for a debt, obligation, or liability of the limited trust association that accrued during the participation of the full liability participant in the limited trust association and before the full liability participant or a successor in interest files a notice of withdrawal as a full liability participant from the limited trust association with the banking commissioner. The filed notice of withdrawal is a public record.
Sec. 4.203. CONTRACTING DEBTS AND OBLIGATIONS. Except as provided by this section or the articles of association of the limited trust association, a debt, liability, or other obligation may be contracted for or incurred on behalf of a limited trust association only by:
(1) a majority of the managers, if management of the limited trust association has been vested in a board of managers;
(2) a majority of the managing participants; or
(3) an officer or other agent vested with actual or apparent authority to contract for or incur the debt, liability, or other obligation.
Sec. 4.204. MANAGEMENT OF LIMITED TRUST ASSOCIATION. (a) Management of a limited trust association is vested in the participants in proportion to each participant's contribution to capital, as adjusted periodically to properly reflect any additional contribution. The articles of association may provide that management of a limited trust association is vested in a board of managers to be elected annually by the participants as prescribed by the bylaws.
(b) Participants of a limited trust association may not retain management and must elect a board of managers if:
(1) any participant is disqualified from serving as a managing participant under Section 4.103 of this Act;
(2) the limited trust association has fewer than five or more than 25 participants; or
(3) any participant has been removed by the banking commissioner under Subchapter A, Chapter 6, of this Act.
(c) The articles of association, bylaws, and participation agreement of a limited trust association may use the terms "director" and "board" instead of "manager" and "board of managers," respectively.
Sec. 4.205. WITHDRAWAL OR REDUCTION OF PARTICIPANT'S CONTRIBUTION TO CAPITAL. (a) A participant may not receive from a limited trust association any part of the participant's contribution to capital until:
(1) all liabilities of the limited trust association, except liabilities to participants on account of contribution to capital, have been paid or, if after the withdrawal or reduction, sufficient property of the limited trust association will remain to pay all liabilities of the limited trust association, except liabilities to participants on account of contribution to capital;
(2) all participants consent, unless the return of the contribution to capital may be demanded as provided by this chapter; or
(3) the articles of association are canceled or amended to set out the withdrawal or reduction.
(b) A participant may demand the return of the participant's contribution to capital on the dissolution of the association and the failure by the full liability participants to exercise the right for the business of the limited trust association to be carried on by the remaining participants as provided by Section 4.207 of this Act.
(c) Unless allowed by the articles of association or by the unanimous consent of all participants of the limited trust association, a participant may demand the return of the participant's contribution to capital only in cash.
Sec. 4.206. INTEREST IN LIMITED TRUST ASSOCIATION; TRANSFERABILITY OF INTEREST. (a) The interest of a participant or participant-transferee in a limited trust association is the personal estate of the participant or the participant-transferee and may be transferred as provided by the bylaws or the participation agreement. A transferee of a participant's interest has the status of a participant-transferee and does not by the transfer become a participant or obtain a right to participate in the management of the limited trust association. A participant-transferee is entitled to receive only a share of profits, return of contribution, or other distributive benefit in respect to the interest transferred to which the participant who transferred the interest would have been entitled. A participant-transferee may become a participant only as provided by the bylaws or the participation