CHAPTER 184. INVESTMENTS, LOANS, AND DEPOSITS

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FINANCE CODE

TITLE 3. FINANCIAL INSTITUTIONS AND BUSINESSES

SUBTITLE F. TRUST COMPANIES

CHAPTER 184. INVESTMENTS, LOANS, AND DEPOSITS

SUBCHAPTER A. ACQUISITION AND OWNERSHIP OF TRUST COMPANY

FACILITIES AND OTHER REAL PROPERTY

Sec. 184.001. DEFINITION. In this subchapter, "state trust

company facility" means real property, including an improvement,

that a state trust company owns or leases, to the extent the

lease or the leasehold improvement is capitalized, for the

purpose of:

(1) providing space for state trust company employees to perform

their duties and for state trust company employees and customers

to park;

(2) conducting trust business, including meeting the reasonable

needs and convenience of the public and the state trust company's

clients, computer operations, document and other item processing,

maintenance, and record retention and storage;

(3) holding, improving, and occupying as an incident to future

expansion of the state trust company's facilities; or

(4) conducting another activity authorized by rules adopted

under this subtitle.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999.

Sec. 184.002. INVESTMENT IN STATE TRUST COMPANY FACILITIES. (a)

Without the prior written approval of the banking commissioner,

a state trust company may not directly or indirectly invest an

amount in excess of 60 percent of its restricted capital in state

trust company facilities, furniture, fixtures, and equipment.

Except as otherwise provided by rules adopted under this

subtitle, in computing the limitation provided by this subsection

a state trust company:

(1) shall include:

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

(B) an investment in equity or investment securities of a

company holding title to a facility used by the state trust

company for the purposes specified by Section 184.001;

of equity or investment securities issued by a company holding

title to a facility used by the state trust company; and

(D) any indebtedness incurred on state trust company facilities

by a company:

(i) that holds title to the facility;

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

(iii) in which the state trust company is invested in the manner

described by Paragraph (B) or (C); and

(2) may exclude an amount included under Subdivisions (1)(B)-(D)

to the extent any lease of a facility from the company holding

title to the facility is capitalized on the books of the state

trust company.

(b) Real property described by Subsection 184.001(3) and not

improved and occupied by the state trust company ceases to be a

state trust company facility on the third anniversary of the date

of its acquisition unless the banking commissioner on application

grants written approval to further delay in the improvement and

occupation of the property by the state trust company.

accounting principles in accounting for its investment in and

depreciation of state trust company facilities, furniture,

fixtures, and equipment.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999.

Sec. 184.003. OTHER REAL PROPERTY. (a) A state trust company

may not invest its restricted capital in real property except:

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

subtitle; or

(2) as necessary to avoid or minimize a loss on a loan or

investment previously made in good faith.

(b) With the prior written approval of the banking commissioner,

a state trust company may:

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

property;

(2) invest additional money in or improve real property acquired

under this subsection or Subsection (a); or

(3) acquire additional real property to avoid or minimize loss

on real property acquired as permitted by Subsection (a).

subject to Subsection (a) not later than:

(1) the fifth anniversary of the date the real property:

(A) was acquired, except as otherwise provided by rules adopted

under this subtitle; or

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

(2) the second anniversary of the date the real property ceases

to be a state trust company facility as provided by Section

184.002(b).

(d) The banking commissioner on application may grant one or

more extensions of time for disposing of real property under

Subsection (c) if the banking commissioner determines that:

(1) the state trust company has made a good faith effort to

dispose of the real property; or

(2) disposal of the real property would be detrimental to the

state trust company.

(e) Subject to the exercise of prudent judgment, a state trust

company may invest its secondary capital in real property. The

factors to be considered by a state trust company in exercise of

prudent judgment include the factors contained in Section

184.101(f).

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999.

SUBCHAPTER B. INVESTMENTS

Sec. 184.101. SECURITIES. (a) A state trust company may invest

its restricted capital in any type or character of equity or

investment securities under the limitations provided by this

section.

(b) Unless the banking commissioner in writing approves

maintenance of a lesser amount, a state trust company must invest

and maintain an amount equal to at least 40 percent of the state

trust company's restricted capital under Section 182.008 in

investment securities that are readily marketable and can be

converted to cash within four business days.

restricted capital in equity and investment securities of any one

issuer, obligor, or maker, and the total investment of its

restricted capital in mutual funds, held by the state trust

company for its own account, may not exceed an amount equal to 15

percent of the state trust company's restricted capital. The

banking commissioner may authorize investments in excess of this

limitation on written application if the banking commissioner

determines that:

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

law; and

(2) the safety and soundness of the requesting state trust

company is not adversely affected.

(d) Notwithstanding Subsection (c), a state trust company may

invest its restricted capital, without limit subject to the

exercise of prudent judgment, in:

(1) bonds and other legally created general obligations of a

state, an agency or political subdivision of a state, the United

States, or an agency or instrumentality of the United States;

(2) obligations that this state, an agency or political

subdivision of this state, the United States, or an agency or

instrumentality of the United States has unconditionally agreed

to purchase, insure, or guarantee;

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

77d(5);

(4) mortgage related securities or small business related

securities, as those terms are defined by 15 U.S.C. Section

78c(a);

(5) mortgages, obligations, or other securities that are or ever

have been sold by the Federal Home Loan Mortgage Corporation

under Section 305 or 306, Federal Home Loan Mortgage Corporation

Act (12 U.S.C. Sections 1434 and 1455);

(6) obligations, participations, or other instruments of or

issued by the Federal National Mortgage Association or the

Government National Mortgage Association;

(7) obligations issued by the Federal Agricultural Mortgage

Corporation, the Federal Farm Credit Banks Funding Corporation,

or a Federal Home Loan Bank;

(8) obligations of the Federal Financing Bank or the

Environmental Financing Authority;

(9) obligations or other instruments or securities of the

Student Loan Marketing Association; or

(10) qualified Canadian government obligations, as defined by 12

U.S.C. Section 24.

(e) In the exercise of prudent judgment, a state trust company

shall, at a minimum:

(1) exercise care and caution to make and implement investment

and management decisions for the entire investment portfolio,

taking into consideration the safety and soundness of the state

trust company;

(2) pursue an overall investment strategy to enable management

to make appropriate present and future decisions; and

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

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

assets;

(B) the general economic conditions;

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

strategies;

(E) the role that each investment or course of action plays

within the investment portfolio; and

(F) the expected total return of the portfolio.

(f) A state trust company may invest its secondary capital in

any type or character of equity or investment securities subject

to the exercise of prudent judgment according to the standards

provided by Subsection (f).

(g) The finance commission may adopt rules to administer and

carry out this section, including rules to:

(1) establish limits, requirements, or exemptions other than

those specified by this section for particular classes or

categories of investment; or

(2) limit or expand investment authority for state trust

companies for particular classes or categories of securities or

other property.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999. Amended by Acts 2001, 77th Leg., ch. 528, Sec. 23, eff.

Sept. 1, 2001.

Sec. 184.102. TRANSACTIONS IN STATE TRUST COMPANY SHARES OR

PARTICIPATION SHARES. Except with the prior written approval of

the banking commissioner:

(1) a state trust company may not acquire its own shares or

participation shares unless the amount of its undivided profits

is sufficient to fully absorb the acquisition of the shares or

participation shares under regulatory accounting principles; and

(2) a state trust company may not acquire a lien on its own

shares or participation shares unless the amount of indebtedness

secured is less than the amount of the state trust company's

undivided profits.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999.

Sec. 184.103. STATE TRUST COMPANY SUBSIDIARIES. (a) Except as

otherwise provided by this subtitle or rules adopted under this

subtitle, and subject to the exercise of prudent judgment, a

state trust company may invest its secondary capital to acquire

or establish one or more subsidiaries to conduct any activity

that may lawfully be conducted through the form of organization

chosen for the subsidiary. The factors to be considered by a

state trust company in exercise of prudent judgment include the

factors contained in Section 184.101(e).

(b) A state trust company that intends to acquire, establish, or

perform new activities through a subsidiary shall submit a letter

to the banking commissioner describing in detail the proposed

activities of the subsidiary.

subsidiary or begin performing new activities in an existing

subsidiary on the 31st day after the date the banking

commissioner receives the state trust company's letter, unless

the banking commissioner specifies an earlier or later date. The

banking commissioner may extend the 30-day period on a

determination that the state trust company's letter raises issues

that require additional information or additional time for

analysis. If the period is extended, the state trust company may

acquire or establish the subsidiary, or perform new activities in

an existing subsidiary, only on prior written approval of the

banking commissioner.

(d) A subsidiary of a state trust company is subject to

regulation by the banking commissioner to the extent provided by

this subtitle or rules adopted under this section. In the absence

of limiting rules, the banking commissioner may regulate a

subsidiary as if it were a state trust company.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999. Amended by Acts 2001, 77th Leg., ch. 528, Sec. 24, eff.

Sept. 1, 2001.

Sec. 184.104. OTHER INVESTMENT PROVISIONS. (a) Without the

prior written approval of the banking commissioner, a state trust

company may not make any investment of its secondary capital in

any investment that incurs or may incur, under regulatory

accounting principles, a liability or contingent liability for

the state trust company.

(b) The banking commissioner may, on a case-by-case basis,

require a state trust company to dispose of any investment of its

secondary capital, if the banking commissioner finds that the

divestiture of the asset is necessary to protect the safety and

soundness of the state trust company. The banking commissioner in

the exercise of discretion under this subsection shall consider

safety and soundness factors, including those contained in

Section 182.008(b). The proposed effective date of an order

requiring a state trust company to dispose of an asset must be

stated in the order and must be on or after the 21st day after

the date the proposed order is mailed or delivered. Unless the

state trust company requests a hearing before the banking

commissioner in writing before the effective date of the proposed

order, the order becomes effective and is final and

nonappealable.

to the exercise of prudent judgment, a state trust company may

invest its secondary capital in any type or character of

investment for the purpose of generating income or profit. The

factors to be considered by a state trust company in exercise of

prudent judgment include the factors contained in Section

184.101(e).

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999. Amended by Acts 2001, 77th Leg., ch. 528, Sec. 25, eff.

Sept. 1, 2001.

Sec. 184.105. ENGAGING IN COMMERCE PROHIBITED. (a) Except as

otherwise provided by this subtitle or rules adopted under this

subtitle, a state trust company may not invest its funds in trade

or commerce by buying, selling, or otherwise dealing goods or by

owning or operating a business not part of the state trust

business, except as necessary to fulfill a fiduciary obligation

to a client.

(b) Under this section, engaging in an approved financial

activity or an activity incidental or complementary to a

financial activity, whether as principal or agent, is not

considered to be engaging in commerce.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999. Amended by Acts 2001, 77th Leg., ch. 528, Sec. 26, eff.

Sept. 1, 2001.

SUBCHAPTER C. LOANS

Sec. 184.201. LENDING LIMITS. (a) A state trust company's

total outstanding loans and extensions of credit to a person

other than an insider may not exceed an amount equal to 15

percent of the state trust company's restricted capital.

(b) The aggregate loans and extensions of credit outstanding at

any time to insiders of the state trust company may not exceed an

amount equal to 15 percent of the state trust company's

restricted capital. All covered transactions between an insider

and a state trust company must be engaged in only on terms and

under circumstances, including credit standards, that are

substantially the same as those for comparable transactions with

a person other than an insider.

section, including rules to:

(1) establish limits, requirements, or exemptions other than

those specified by this section for particular classes or

categories of loans or extensions of credit; and

(2) establish collective lending and investment limits.

(d) The banking commissioner may determine whether a loan or

extension of credit putatively made to a person will be

attributed to another person for purposes of this section.

(e) A state trust company may not lend trust deposits, except

that a trustee may make a loan to a beneficiary of the trust if

the loan is expressly authorized or directed by the instrument or

transaction establishing the trust.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999.

Sec. 184.202. VIOLATION OF LENDING LIMIT. (a) An officer,

director, manager, managing participant, or employee of a state

trust company who approves or participates in the approval of a

loan with actual knowledge that the loan violates Section 184.201

is jointly and severally liable to the state trust company for

the lesser of the amount by which the loan exceeded applicable

lending limits or the state trust company's actual loss. The

person remains liable for that amount until the loan and all

prior indebtedness of the borrower to the state trust company

have been fully repaid.

(b) The state trust company may initiate a proceeding to collect

an amount due under this section at any time before the date the

borrower defaults on the subject loan or any prior indebtedness

or before the fourth anniversary of that date.

trust company under this section is entitled to an assignment of

the state trust company's claim against the borrower to the

extent of the payments.

(d) For purposes of this section, an officer, director, manager,

managing participant, or employee of a state trust company is

presumed to know the amount of the state trust company's lending

limit under Section 184.201 and the amount of the borrower's

aggregate outstanding indebtedness to the state trust company

immediately before a new loan or extension of credit to that

borrower.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999.

Sec. 184.203. LEASE FINANCING TRANSACTION. (a) Subject to

rules adopted under this subtitle, a state trust company may

become the owner and lessor of tangible personal property for

lease financing transactions on a net lease basis on the specific

request and for the use of a client. Without the written approval

of the banking commissioner to continue holding property acquired

for leasing purposes under this subsection, the state trust

company may not hold the property more than six months after the

date of expiration of the original or any extended or renewed

lease period agreed to by the client for whom the property was

acquired or by a subsequent lessee.

(b) A rental payment received by the state trust company in a

lease financing transaction under this section is considered to

be rent and not interest or compensation for the use,

forbearance, or detention of money. However, a lease financing

transaction is considered to be a loan or extension of credit for

purposes of Sections 184.201 and 184.202.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999.

Sec. 184.204. GENERAL BANKING PRIVILEGES NOT CONFERRED. This

subchapter does not confer general banking privileges on a state

trust company.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999.

SUBCHAPTER D. TRUST DEPOSITS

Sec. 184.301. TRUST DEPOSITS. (a) A state trust company may

deposit trust funds with itself as an investment if:

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

(2) the state trust company maintains as security for the

deposit a separate fund of securities, legal for trust

investments, under control of a federal reserve bank or a

clearing corporation, as defined by Section 8.102, Business &

Commerce Code, within or outside this state;

(3) the total market value of the security is at all times at

least equal to the amount of the deposit; and

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

(b) A state trust company may make periodic withdrawals from or

additions to a securities fund required by Subsection (a) as long

as the required value is maintained. Income from the securities

in the fund belongs to the state trust company.

for a deposit under Subsection (a) to the extent the deposit is

insured by the Federal Deposit Insurance Corporation or its

successor.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999.

Sec. 184.302. GENERAL BANKING PRIVILEGES NOT CONFERRED. This

subchapter does not confer general banking privileges on a state

trust company.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999.

SUBCHAPTER E. LIABILITIES AND PLEDGE OF ASSETS

Sec. 184.401. BORROWING LIMIT. Except with the prior written

approval of the banking commissioner, a state trust company may

not have outstanding liabilities, excluding trust deposit

liabilities arising under Section 184.301, that exceed an amount

equal to five times its restricted capital.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999.

Sec. 184.402. PLEDGE OF ASSETS. (a) A state trust company may

not pledge or create a lien on any of its assets except to

secure:

(1) the repayment of money borrowed;

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

(A) Section 184.301;

(B) Title 9, Property Code; or

(3) deposits made by:

(A) the United States;

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

municipality.

(b) An act, deed, conveyance, pledge, or contract in violation

of this section is void.

Added by Acts 1999, 76th Leg., ch. 62, Sec. 7.16(a), eff. Sept.

1, 1999.

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