H.B. No. 1962

AN ACT

relating to the application of the Business Organizations Code to certain financial institutions and the regulation of those institutions by the Texas Department of Banking.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 11.105, Finance Code, is amended to read as follows:

Sec. 11.105. MATTER IN WHICH MEMBER HAS PERSONAL INTEREST. A member of the finance commission may not act or participate in the portion of a commission meeting during which the matter considered specifically relates to an entity:

(1) of which the member or the member's spouse is an officer, director, stockholder, shareholder, [manager, participant, participant-transferee,] or owner; or

(2) in which the member or the member's spouse has another financial interest.

SECTION 2. Sections 31.002(a)(7), (9), (13), (29), (42), (48), (49), (57), and (58), Finance Code, are amended to read as follows:

(7) "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 bank or other entity. As the context requires, the term includes the board of managers of a limited banking association.

(9) "Capital" means:

(A) the sum of:

(i) the par value of all shares [or participation shares] of the state bank having a par value that have been issued;

(ii) the consideration set by the board [in the manner provided by the Texas Business Corporation Act] for all shares [or participation shares] of the state bank 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) that has been transferred to capital of the state bank, on the payment of a share dividend or on adoption by the board of a resolution directing that all or part of surplus be transferred to capital, minus each reduction made as permitted by law; less

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

(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 bank or other company;

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

(C) the power to exercise, directly or indirectly, a controlling influence over the management or policies of the bank 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 a bank or other company on the transfer of 25 percent or more of the outstanding shares of a class of voting securities of another bank or other company.

(29) "Hazardous condition" means:

(A) a refusal by a state bank to permit examination of its books, papers, accounts, records, or affairs by the banking commissioner;

(B) a circumstance or condition in which an unreasonable risk of substantial loss is threatened to the depositors, creditors, or shareholders[, or participants] of a state bank, including a circumstance or condition in which a state bank:

(i) has inadequate equity capital, or the adequacy of its equity capital is threatened;

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

(iii) violates or refuses to comply with this subtitle, another statute or rule applicable to state banks, or a final and enforceable order of the banking commissioner;

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

(v) conducts business in an unsafe and unsound manner; or

(vi) is insolvent; or

(C) a violation by a state bank of a condition of its chartering or an agreement entered into between the bank and the banking commissioner or the department.

(42) "Participation agreement" means the instrument stating the agreement among the participants of a limited banking association relating to the rights and duties of the participants [and participant-transferees], including:

(A) allocations of income, loss, deduction, credit, distributions, liquidation rights, redemption rights, and liabilities of participants[, priority rights of participant-transferees to transfer participation shares, and rights of participants to purchase participation shares of participant-transferees];

(B) procedures for elections and voting by participants; and

(C) any other matter not prohibited by or inconsistent with this subtitle.

(48) "Shareholder" means an owner of a share in a banking association. As the context requires, the term includes a participant.

(49) "Shares" means the units into which the proprietary interests of a banking association are divided or subdivided by means of classes, series, relative rights, or preferences. As the context requires, the term includes participation shares.

(57) "Undivided profits" means the part of equity capital of a state bank 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.

(58) "Voting security" means a share[, participation share,] or other evidence of proprietary interest in a state bank or other company that has as an attribute the right to vote or participate in the election of the board of the state bank 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].

SECTION 3. Sections 31.006(a), (b), and (c), Finance Code, are amended to read as follows:

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

(b) A director, [manager, managing participant,] officer, or employee of a depository institution is disinterested with respect to a decision or transaction if:

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

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

(A) personal profit for the person through dealing with the depository institution or usurping an opportunity of the depository institution;

(B) buying or selling an asset of the depository institution in a transaction in which the person has a direct or indirect pecuniary interest;

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

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

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

(1) one or more directors, [managers, managing participants,] officers, or employees of the depository institution, or of an entity under joint or common control with the depository institution, who the director[, manager, managing participant,] or officer reasonably believes merit confidence;

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

(3) a committee of the board of which the director[, manager, or managing participant] is not a member.

SECTION 4. Section 31.007(a), Finance Code, is amended to read as follows:

(a) An officer, director, [manager, managing participant,] or employee of a bank that has its main office or a branch located in this state with fewer than 500 shareholders [or participants] or of a bank holding company with fewer than 500 shareholders [or participants] that controls a bank that has its main office or a branch located in this state is exempt from the registration and licensing provisions of The Securities Act (Article 581-1 et seq., Vernon's Texas Civil Statutes) with respect to that person's participation in a transaction, including a sale, involving securities issued by:

(1) the bank or bank holding company of which that person is an officer, director, [manager, managing participant,] or employee;

(2) a bank holding company that controls the bank of which that person is an officer, director, [manager, managing participant,] or employee; or

(3) a bank controlled by the bank holding company of which that person is an officer, director, [manager, managing participant,] or employee.

SECTION 5. Section 31.105(b), Finance Code, is amended to read as follows:

(b) The banking commissioner may examine a state bank more often than required by Subsection (a) as the commissioner considers necessary to:

(1) safeguard the interests of depositors, creditors, and shareholders[, participants, and participant-transferees]; and

(2) efficiently enforce applicable law.

SECTION 6. Section 31.301(a), Finance Code, is amended to read as follows:

(a) Except as expressly provided otherwise by this subtitle, Chapter 11 or 12, or a rule adopted under this subtitle, the following are confidential and may not be disclosed by the banking commissioner or an employee of the department:

(1) information directly or indirectly obtained by the department in any manner, including an application or examination, concerning the financial condition or business affairs of a financial institution or a present, former, or prospective shareholder, [participant,] officer, director, [manager,] affiliate, or service provider of a financial institution, other than information in a published statement or in the public portion of a call report or profit and loss statement; and

(2) all related files and records of the department.

SECTION 7. Section 31.308, Finance Code, is amended to read as follows:

Sec. 31.308. SHAREHOLDER INSPECTION RIGHTS. (a) Notwithstanding Section 21.218 or 101.502, Business Organizations Code [Article 2.44, Texas Business Corporation Act], a shareholder [or participant] of a state bank may not examine:

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

(2) a book or record of the state bank that directly or indirectly pertains to financial or other information maintained by the bank on behalf of its customers, including a specific item in the minutes of the board or a committee of the board regarding loan review and approval or a loan delinquency report that would tend to identify the bank's customer.

(b) This section does not affect a right of a shareholder [or participant] of a state bank acting in another capacity.

SECTION 8. Section 32.002(a), Finance Code, is amended to read as follows:

(a) The articles of association of a state bank must be signed and acknowledged by each organizer and must contain:

(1) the name of the bank, subject to Subsection (b);

(2) the period of the bank's duration, which may be perpetual, subject to Subsection (c);

(3) the powers of the bank, which may be stated as:

(A) all powers granted by law to a state bank; or

(B) a list of the specific powers under Section 32.001 that the bank chooses to exercise;

(4) the aggregate number of shares [or participation shares] that the bank will be authorized to issue and the number of classes of shares [or participation shares], which may be one or more;

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

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

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

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

(6) any provision limiting or denying to shareholders [or participants] the preemptive right to acquire additional or treasury shares [or participation shares] of the bank;

(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 bank and a statement that:

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

(B) 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 bank or] that is otherwise required by this subtitle to be set forth in the articles of association;

(10) the street address of the bank's initial home office; [and]

(11) [either:

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

(12) subject to Section 32.008, 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 bank, including provisions permissible under the Business Organizations Code for:

(A) a for-profit corporation, in the case of a proposed banking association; or

(B) a limited liability company, in the case of a proposed limited banking association [or

[(B) the statement described by Subsection (d)].

SECTION 9. Section 32.003, Finance Code, is amended to read as follows:

Sec. 32.003. APPLICATION FOR STATE BANK CHARTER; STANDARDS FOR APPROVAL. (a) An application for a state bank charter must be made under oath and in the form required by the banking commissioner, who shall inquire fully into the identity and character of each proposed director, [manager,] officer, [managing participant,] and principal shareholder [or participant]. The application must be accompanied by all charter fees and deposits required by law.

(b) The banking commissioner shall grant a state bank charter only if the commissioner determines that the organizers have established that public convenience and advantage will be promoted by the establishment of the state bank. In determining whether public convenience and advantage will be promoted, the banking commissioner shall consider the convenience of the public to be served and whether:

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

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

(3) the officers and[,] directors[, managers, and managing participants] as a group have sufficient banking experience, ability, standing, competence, trustworthiness, and integrity to justify a belief that the bank will operate in compliance with law and that success of the bank is probable;

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

(5) the organizers are acting in good faith.

SECTION 10. Section 32.004(c), Finance Code, is amended to read as follows:

(c) Rules adopted under this subtitle may specify the confidential or nonconfidential character of information obtained by the department under this chapter. Except as provided by Subchapter D, Chapter 31, or in rules regarding confidential information, the financial statement of a proposed officer or[,] director[, manager, or managing participant] is confidential and not subject to public disclosure.

SECTION 11. Section 32.006, Finance Code, is amended to read as follows:

Sec. 32.006. ISSUANCE OF CERTIFICATE OF AUTHORITY. A state bank may not engage in the business of banking until it receives a certificate of authority from the banking commissioner. The banking commissioner may not deliver the certificate of authority until the bank has:

(1) received cash for the issuance of all authorized shares [or participation shares] in the full amount subscribed;

(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 the other requirements of this subtitle relating to the organization of state banks.

SECTION 12. Section 32.008, Finance Code, is amended to read as follows:

Sec. 32.008. APPLICATION OF GENERAL CORPORATE LAW. (a) The [Texas] Business Organizations Code applies [Corporation Act and the Texas Miscellaneous Corporation Laws Act (Article 1302-1.01 et seq., Vernon's Texas Civil Statutes) apply] to a banking association as if it were a for-profit corporation, and [the Texas Limited Liability Company Act (Article 1528n, Vernon's Texas Civil Statutes) applies] to a limited banking association as if it were a limited liability company, to the extent not inconsistent with this subtitle or the proper business of a state bank, except that:

(1) a reference in the Business Organizations Code [those Acts] 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 bank's articles of association.

(b) The finance commission may adopt rules to limit or refine the applicability of the laws listed by Subsection (a) or (d) to a state bank or to alter or supplement the procedures and requirements of those laws applicable to an action taken under this chapter.

(c) Unless expressly authorized by this subtitle or a rule adopted under this subtitle, a state bank may not take an action authorized by a law listed by Subsection (a) or (d) regarding its corporate status, its capital structure, or a matter of corporate governance, of the type for which those laws would require a filing with the secretary of state if the bank were a business corporation, without submitting the filing to the banking commissioner and obtaining the banking commissioner's prior written approval of the action.

(d) Notwithstanding Subsection (a), this subsection establishes governing law with respect to a state bank organized before January 1, 2006:

(1) to the extent not inconsistent with this subtitle or the proper business of a state bank:

(A) the Texas Business Corporation Act, the Texas Miscellaneous Corporation Laws Act (Article 1302-1.01 et seq., Vernon's Texas Civil Statutes), and any other law relating to general business corporations apply to a state banking association, and a reference in this subtitle to the Business Organizations Code is considered a reference to the prior law; and

(B) the Texas Limited Liability Company Act (Article 1528n, Vernon's Texas Civil Statutes) and any other law relating to a limited liability company organized in Texas apply to a limited banking association, and a reference in this subtitle to the Business Organizations Code is considered a reference to the prior law;

(2) the finance commission may establish rules permitting a state bank to elect to be governed by the provisions of the Business Organizations Code to the extent not inconsistent with this subtitle or the proper business of a state bank; and

(3) this subsection expires January 1, 2010.

SECTION 13. Sections 32.101(c) and (d), Finance Code, are amended to read as follows:

(c) [A limited banking 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 the events resulting in dissolution of the limited banking association under Section 33.208.

[(d)] Amendment or restatement of the articles of association of a state bank and approval of the bank's board and shareholders [or participants] must be made or obtained as provided by the [Texas] Business Organizations Code [Corporation Act] for the amendment or restatement of a certificate of formation by a for-profit corporation [articles of incorporation] except as otherwise provided by this subtitle or rules adopted under this subtitle. 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. 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 of the amendment or restatement with the date of approval and the word "Approved";

(2) file the original of the amendment or restatement in the department's records; and

(3) deliver a certified copy of the amendment or restatement to the bank.

SECTION 14. The heading to Section 32.102, Finance Code, is amended to read as follows:

Sec. 32.102. ESTABLISHING SERIES OF SHARES [OR PARTICIPATION SHARES].

SECTION 15. Sections 32.102(a) and (b), Finance Code, are amended to read as follows:

(a) If the articles of association expressly give the board of a state bank authority to establish shares [or participation shares] in series and determine the preferences, limitations, and relative rights of each series, the board may do so only in compliance with this section and any rules adopted under this subtitle.

(b) A series of shares [or participation shares] may be established in the manner provided by the [Texas] Business Organizations Code [Corporation Act] as if the state bank were a domestic entity [corporation], but the shares [or participation shares] of the series may not be issued and sold without the prior written approval of the banking commissioner under Section 32.103. The bank shall file the original and one copy of the statement of action required by the [Texas] Business Organizations Code [Corporation Act] with the banking commissioner.

SECTION 16. Sections 32.103(a) and (b), Finance Code, are amended to read as follows:

(a) A state bank may not reduce or increase its outstanding capital and surplus through dividend, redemption, issuance of shares [or participation shares], or otherwise, without the prior written approval of the banking commissioner, except as permitted by this section or rules adopted under this subtitle.

(b) Unless restricted by rule, prior written approval is not required for an increase in capital and surplus 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 Organizations Code [Corporation Act]; or

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

SECTION 17. Sections 32.104(a) and (b), Finance Code, are amended to read as follows:

(a) With the prior written approval of the banking commissioner, a state bank 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 capital 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 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.

SECTION 18. Sections 32.301(b) and (c), Finance Code, are amended to read as follows:

(b) Implementation of the merger by the parties and approval of the board, shareholders, [participants,] or owners of the parties must be made or obtained in accordance with the [Texas] Business Organizations Code [Corporation Act] as if the state bank were a domestic entity [corporation] and all other parties to the merger were foreign [corporations and other] entities, except as may be otherwise provided by applicable rules.

(c) A consummated merger has the effect provided by the [Texas] Business Organizations Code [Corporation Act]. A separate application is not required to relocate the home office of a surviving state bank or to grant authority to a surviving bank to operate new branch offices that previously existed as part of a merging financial institution if the intent of the surviving bank is clearly stated as part of the plan of merger.

SECTION 19. Section 32.303, Finance Code, is amended to read as follows:

Sec. 32.303. RIGHTS OF DISSENTERS FROM 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 Organizations Code [Corporation Act] or any rules adopted under this subtitle.

SECTION 20. Section 32.403, Finance Code, is amended to read as follows:

Sec. 32.403. LIQUIDATION OF SELLING INSTITUTION. If the selling financial 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 bank shall pay to the receiver of the selling institution the balance of the money held by it in trust or on deposit for the selling institution and not yet paid to the depositors and creditors of the selling institution. Without further action the purchasing bank is discharged from all responsibilities to the selling institution and to [or] the selling institution's receiver, depositors, creditors, and shareholders[, participants, or participant-transferees].

SECTION 21. Sections 32.405(a) and (c), Finance Code, are amended to read as follows:

(a) The board of a state bank, with the prior written approval of the banking commissioner, may cause the bank to sell all or substantially all of its assets without shareholder [or participant] approval if:

(1) the banking commissioner finds the interests of depositors and creditors are jeopardized because of insolvency or imminent insolvency and that the sale is in their best interest; and

(2) the Federal Deposit Insurance Corporation or its successor approves the transaction and agrees to provide assistance to the prospective buyer under 12 U.S.C. Section 1823(c) or a comparable law unless the deposits of the bank are not insured.

(c) This section does not affect the banking commissioner's right to take action under another law. The sale by a state bank 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 36.

SECTION 22. Sections 32.501(b) and (c), Finance Code, are amended to read as follows:

(b) The merger or conversion by the state bank must be made and approval of its board and[,] shareholders[, or participants] must be obtained in accordance with the [Texas] Business Organizations Code [Corporation Act] as if the state bank were a domestic entity [corporation] and all other parties to the transaction, if any, were foreign [corporations and other] entities, except as provided by rule. For purposes of this subsection, a conversion is considered a merger into the successor form of financial institution.

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

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

(2) the bank has published notice of the transaction, in the form and frequency specified by the banking commissioner, in:

(A) 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

(B) other locations that the banking commissioner considers appropriate;

(3) the bank has filed with the banking commissioner:

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

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

(C) a publisher's certificate showing publication of the required notice;

(4) the banking commissioner determines that:

(A) all deposit and other liabilities of the state bank are fully discharged, assumed, or otherwise retained by the successor form of financial institution;

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

(C) any required filing fees have been paid; and

(5) the bank has received a certificate of authority to do business as the successor financial institution.

SECTION 23. Section 32.502(b), Finance Code, is amended to read as follows:

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

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

(2) the financial institution has adequate capitalization for a state bank to engage in business at the same locations as the financial institution is engaged in business before the conversion;

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

(4) the officers and[,] directors[, managers, and managing participants] of the financial institution as a group have sufficient banking experience, ability, standing, competence, trustworthiness, and integrity to justify a belief that the financial institution will operate as a state bank in compliance with law;

(5) each principal shareholder [or participant] has sufficient experience, ability, standing, competence, trustworthiness, and integrity to justify a belief that the financial institution will be free from improper or unlawful influence or interference with respect to the financial institution's operation as a state bank in compliance with law; and

(6) if the converting financial institution did not have general depository powers and the state bank will have those powers, the factors set forth in Section 32.003(b) are satisfied.

SECTION 24. Section 33.001(b), Finance Code, is amended to read as follows:

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

SECTION 25. Section 33.101(a), Finance Code, is amended to read as follows:

(a) Voting securities of a state bank held by the bank in a fiduciary capacity under a will or trust, whether registered in the bank's 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 bank 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 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 so that discretion is not vested in the bank as fiduciary; or

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

SECTION 26. Section 33.102, Finance Code, is amended to read as follows:

Sec. 33.102. BYLAWS. Each [Except as provided by Section 33.207, each] state bank shall adopt bylaws and may amend its bylaws for the purposes and according to the procedures provided by the [Texas] Business Organizations Code [Corporation Act].

SECTION 27. Section 33.103, Finance Code, is amended to read as follows:

Sec. 33.103. BOARD OF DIRECTORS[, MANAGERS, OR MANAGING PARTICIPANTS]. (a) The board of a state bank must consist of not fewer than five but not more than 25 directors, [managers, or managing participants,] a majority of whom are residents of this state. The [Except for a limited banking association in which management has been retained by its participants, the] principal executive officer of the bank is a member of the board. The principal executive officer acting in the capacity of a 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 bank if:

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

(A) the person; or

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

(2) the person is the subject of an order described by Section 35.007(a); or

(3) the person has been convicted of a felony.

(c) If a state bank [other than a limited banking 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 35 to operate the bank 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 bank 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 banking association with fewer than five managing participants shall add one or more new participants or elect a board of managers of not fewer than five persons to resolve the vacancy.] If the vacancy is not timely filled, the banking commissioner may appoint a conservator under Chapter 35 to operate the bank 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 bank for liquidation.

(e) Before each term to which a person is elected to serve as a director [or manager] of a state bank, [or annually for a person who is a managing participant,] the person shall submit an affidavit for filing in the minutes of the bank 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 bank to violate any law applicable to the conduct of business of the bank; and

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

(f) The banking commissioner in the exercise of discretion may waive or reduce the residency requirements for directors set forth in Subsection (a).

SECTION 28. Section 33.104, Finance Code, is amended to read as follows:

Sec. 33.104. ADVISORY DIRECTOR [OR ADVISORY MANAGER]. An advisory director [or advisory manager] is not considered a director [or manager] if the advisory director [or advisory manager]:

(1) is not elected by the shareholders [or participants] of the bank;

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

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

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

SECTION 29. Sections 33.108(a) and (b), Finance Code, are amended to read as follows:

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

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

(2) removes, destroys, or conceals any book or record of the bank that is material to a pending or anticipated legal or administrative proceeding.

(b) An officer, director, [manager, managing participant,] or employee of a state bank commits an offense if the person:

(1) knowingly makes a false entry in a book, record, report, or statement of the bank; or

(2) violates or knowingly participates in a violation of, or permits another of the bank's officers, directors, [managers, managing participants,] or employees to violate, the prohibition on lending trust funds under Section 113.052, Property Code.

SECTION 30. Section 33.109, Finance Code, is amended to read as follows:

Sec. 33.109. TRANSACTIONS WITH MANAGEMENT AND AFFILIATES. (a) Without the prior approval of a disinterested majority of the board recorded in the minutes or, if a disinterested majority cannot be obtained, the prior written approval of the banking commissioner, a state bank may not directly or indirectly:

(1) sell or lease an asset of the bank to an officer, director, [manager, managing participant,] or principal shareholder [or participant] of the bank or of an affiliate of the bank; or

(2) purchase or lease an asset in which an officer, director, [manager, managing participant,] or principal shareholder [or participant] of the bank or of an affiliate of the bank has an interest.

(b) An officer or[,] director[, manager, or managing participant] of the bank 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.

SECTION 31. Section 33.201(a), Finance Code, is amended to read as follows:

(a) A [Except as provided by Subsection (b), a] participant[, participant-transferee,] or manager of a limited banking association is not liable for a debt, obligation, or liability of the limited banking 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 banking association is not a proper party to a proceeding by or against a limited banking association unless the object of the proceeding is to enforce a participant's or manager's right against or liability to a limited banking association.

SECTION 32. Sections 33.204(a) and (b), Finance Code, are amended to read as follows:

(a) Management of a limited banking 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 banking association is vested in] a board of managers [to be] elected [annually] by the participants as prescribed by the bylaws.

(b) A board of managers operates in substantially the same manner as, and has substantially the same rights, powers, privileges, duties, and responsibilities, as a board of directors of a banking association, and a manager must meet the qualifications for a director under Section 33.103. [Participants of a limited banking 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 33.103;

[(2) the limited banking 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 35.]

SECTION 33. Section 33.206, Finance Code, is amended to read as follows:

Sec. 33.206. INTEREST IN LIMITED BANKING ASSOCIATION; TRANSFERABILITY OF INTEREST. (a) The interest of a participant [or participant-transferee] in a limited banking association is the personal property of the participant [or the participant-transferee] and may be transferred as provided by the bylaws or the participation agreement.

(b) The bylaws or the participation agreement may not require the consent of any other participant in order for a participant to transfer participation shares, including voting rights. [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 banking association.

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

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

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

SECTION 34. Section 33.208, Finance Code, is amended to read as follows:

Sec. 33.208. DISSOLUTION. The bylaws or the participation agreement may not require automatic termination, dissolution, or suspension of the limited banking association on the death, disability, bankruptcy, expulsion, or withdrawal of a participant, or on the happening of any other event other than the passage of time. [(a) A limited banking association organized under this chapter is dissolved on:

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

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

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

[(4) the occurrence of an event of dissolution specified in the articles of association.

[(b) A dissolution under this section is considered to be the initiation of a voluntary liquidation under Subchapter B, Chapter 36.

[(c) An event of dissolution described by Subsection (a)(3) does not cancel or revoke a contract to which the bank is a party, including a trust indenture or agreement or voluntary dissolution under Subchapter B, Chapter 36, until the period for the remaining participants to continue the business of the bank has expired without the remaining participants having completed the necessary action to continue the business of the bank.]

SECTION 35. Section 33.211, Finance Code, is amended to read as follows:

Sec. 33.211. APPLICATION OF OTHER PROVISIONS TO LIMITED BANKING ASSOCIATIONS. For purposes of the provisions of Subtitle A and this subtitle other than this subchapter, as the context requires:

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

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

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

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

(4) [(5)] a distribution is considered to be a dividend.

SECTION 36. Section 34.102, Finance Code, is amended to read as follows:

Sec. 34.102. TRANSACTION IN BANK SHARES [OR PARTICIPATION SHARES]. (a) A state bank may not acquire a lien by pledge or otherwise on its own shares [or participation shares], or otherwise purchase or acquire title to its own shares [or participation shares], except:

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

(2) as provided by Subsection (b).

(b) With the prior written approval of the banking commissioner or as permitted by rules adopted under this subtitle, a state bank may acquire title to its own shares [or participation shares] and hold those shares [or participation shares] as treasury stock. Treasury stock acquired under this subsection is not considered an equity investment.

(c) If a state bank acquires a lien on or title to its own shares [or participation shares] under this section, the lien may not by its original terms extend for more than two years. Except with the prior written approval of the banking commissioner, the bank may not hold title to its own shares [or participation shares] for more than one year.

(d) A state bank may make loans on the collateral security of securities issued by an affiliate, if the loan is subject to and in compliance with the provisions of Sections 23A and 23B, Federal Reserve Act (12 U.S.C. Sections 371c and 371c-1), as amended, applicable to nonmember insured state banks by virtue of Section 18(j)(1), Federal Deposit Insurance Act (12 U.S.C. Section 1828(j)(1)), as amended.

SECTION 37. Sections 34.104(b) and (c), Finance Code, are amended to read as follows:

(b) If the portfolio of an investment company described by Subsection (a) consists wholly of investments in which the bank could invest directly without limitation [under Section 34.101(e)], the bank may invest in the investment company without limitation.

(c) The bank may invest not more than an amount equal to 15 percent of the bank's capital and certified surplus in an investment company described by Subsection (a) the portfolio of which contains an investment or obligation in which the bank could not invest directly without limitation under this chapter [that is subject to the limitations of Section 34.101(d) or 34.201(a)].

SECTION 38. Section 34.105(c)(2), Finance Code, is amended to read as follows:

(2) "Banker's bank" means a bank insured by the Federal Deposit Insurance Corporation or a bank holding company that owns or controls such an insured bank if:

(A) all equity securities of the bank or bank holding company, other than director's qualifying shares or shares issued under an employee compensation plan, are owned by depository institutions or depository institution holding companies; and

(B) the bank or bank holding company and all its subsidiaries are engaged exclusively in providing:

(i) services to or for other depository institutions, depository institution holding companies, and the directors, [managers, managing participants,] officers, and employees of other depository institutions and depository institution holding companies; and

(ii) correspondent banking services at the request of other depository institutions, depository institution holding companies, or their subsidiaries.

SECTION 39. Sections 34.202(a) and (d), Finance Code, are amended to read as follows:

(a) An officer, director, [manager, managing participant,] or employee of a state bank who approves or participates in the approval of a loan with actual knowledge that the loan violates Section 34.201 is jointly and severally liable to the bank for the lesser of the amount by which the loan exceeded applicable lending limits or the bank's actual loss. The person remains liable for that amount until the loan and all prior indebtedness of the borrower to the bank have been fully repaid.

(d) For purposes of this section, an officer, director, [manager, managing participant,] or employee of a state bank is presumed to know the amount of the bank's lending limit under Section 34.201(a) and the amount of the borrower's aggregate outstanding indebtedness to the bank immediately before a new loan or extension of credit to that borrower.

SECTION 40. Section 34.203(b), Finance Code, is amended to read as follows:

(b) This section does not authorize the bank to charge its borrower for payment of fees and expenses to an officer or[,] director[, manager, or managing participant] of the bank for services rendered in the person's capacity as an officer or[,] director[, manager, or managing participant].

SECTION 41. Sections 35.002(a) and (b), Finance Code, are amended to read as follows:

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

(1) violated this subtitle or another applicable law;

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

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

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

(5) violated a condition of the bank's charter or an agreement between the bank or the person and the banking commissioner or the department.

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

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

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

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

SECTION 42. Sections 35.003(a) and (b), Finance Code, are amended to read as follows:

(a) The banking commissioner has grounds to remove a present or former officer, director, [manager, managing participant,] or employee of a state bank from office or employment in, or prohibit a controlling shareholder [or participant] or other person participating in the affairs of a state bank from further participation in the affairs of, a state bank if the banking commissioner determines from examination or other credible evidence that:

(1) the person:

(A) intentionally committed or participated in commission of an act described by Section 35.002(a) with regard to the affairs of the bank; or

(B) violated a final cease and desist order issued in response to the same or a similar act;

(2) because of this action by the person:

(A) the bank has suffered or will probably suffer financial loss or other damage;

(B) the interests of the bank's depositors have been or could be prejudiced; or

(C) the person has received financial gain or other benefit by reason of the action; and

(3) the action:

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

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

(b) If the banking commissioner has grounds for action under Subsection (a) and finds that a removal or prohibition order appears to be necessary and in the best interest of the bank involved and its depositors, creditors, and shareholders [or participants], the banking commissioner may serve a proposed removal or prohibition order, as appropriate, on a person alleged to have committed or participated in the action. The proposed order must:

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

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

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

SECTION 43. Section 35.005(a), Finance Code, is amended to read as follows:

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

SECTION 44. Section 35.006, Finance Code, is amended to read as follows:

Sec. 35.006. COPY OF LETTER OR ORDER IN BANK RECORDS. A copy of a determination letter, proposed order, emergency order, or final order issued by the banking commissioner under this subchapter shall be immediately brought to the attention of the board of the affected bank, regardless of whether the bank is a party, and filed in the minutes of the board. Each director[, manager, or managing participant] shall immediately certify to the banking commissioner in writing that the certifying person has read and understood the determination letter, proposed order, emergency order, or final order. The required certification may not be considered an admission of a person in a subsequent legal or administrative proceeding.

SECTION 45. Section 35.101(a), Finance Code, is amended to read as follows:

(a) The banking commissioner by order may appoint a supervisor over a state bank if the banking commissioner determines from examination or other credible evidence that the bank is in hazardous condition and that an order of supervision appears to be necessary and in the best interest of the bank and its depositors, creditors, and shareholders [or participants], or the public.

SECTION 46. Section 35.102(a), Finance Code, is amended to read as follows:

(a) The banking commissioner by order may appoint a conservator for a state bank if the banking commissioner determines from examination or other credible evidence that the bank is in hazardous condition and immediate and irreparable harm is threatened to the bank, its depositors, creditors, or shareholders [or participants], or the public.

SECTION 47. Section 35.106, Finance Code, is amended to read as follows:

Sec. 35.106. AUTHORITY OF SUPERVISOR. During a period of supervision, a bank, without the prior approval of the banking commissioner or the supervisor or as otherwise permitted or restricted by the order of supervision, may not:

(1) dispose of, sell, transfer, convey, or encumber the bank's assets;

(2) lend or invest the bank's money;

(3) incur a debt, obligation, or liability; or

(4) pay a cash dividend to the bank's shareholders [or participants].

SECTION 48. Section 35.107(b), Finance Code, is amended to read as follows:

(b) Subject to any limitation in the order of appointment or other direction of the banking commissioner, the conservator has all the powers of the directors, [managers, managing participants,] officers, and shareholders [or participants] of the bank and shall conduct the business of the bank and take all steps the conservator considers appropriate to remove the conditions causing the conservatorship. During the conservatorship, the board may not direct or participate in the affairs of the bank.

SECTION 49. Section 36.101, Finance Code, is amended to read as follows:

Sec. 36.101. INITIATING VOLUNTARY DISSOLUTION. (a) A state bank may initiate voluntary dissolution and surrender its charter as provided by this subchapter:

(1) with the approval of the banking commissioner;

(2) after complying with the provisions of the [Texas] Business Organizations Code [Corporation Act] regarding board and shareholder approval for voluntary dissolution; and

(3) by filing the documents as provided by Section 36.102.

(b) The shareholders [or participants] of a state bank initiating voluntary dissolution by resolution shall appoint one or more persons to act as the liquidating agent or committee. The liquidating agent or committee shall conduct the liquidation as provided by law and under the supervision of the bank's board. The board, in consultation with the banking commissioner, shall require the liquidating agent or committee to give a suitable bond.

SECTION 50. Section 36.102, Finance Code, is amended to read as follows:

Sec. 36.102. FILING RESOLUTIONS WITH BANKING COMMISSIONER. After resolutions to dissolve and liquidate a state bank have been adopted by the bank's board and shareholders [or participants], a majority of the directors[, managers, or managing participants] shall verify and file with the banking commissioner duplicate certified copies of:

(1) the resolutions of the shareholders [or participants] that:

(A) are adopted at a meeting for which proper notice was given or by unanimous written consent; and

(B) approve the dissolution and liquidation of the bank;

(2) the resolutions of the board approving the dissolution and liquidation of the bank [if the bank is operated by a board of directors or managers]; and

(3) a copy of the notice to the shareholders [or participants] informing them of the meeting.

SECTION 51. Sections 36.108(a), (c), and (d), Finance Code, are amended to read as follows:

(a) After the bank has taken all of the actions specified by Sections 36.102, 36.105, and 36.107, paid all its debts and obligations, and transferred all property for which a legal claimant has been found after the time for presentation of claims has expired, the bank shall make a list from its books of the names of each depositor, creditor, owner of personal property in the bank's possession or custody, or lessee of any safe, vault, or box, who has not claimed or has not received a deposit, debt, dividend, interest, balance, or other amount or property due to the person. The list must be sworn to or affirmed by a majority of the bank's board [or managing participants].

(c) After the banking commissioner has reviewed the list and has reconciled the unclaimed cash and property with the amounts of money and property reported and transferred to the comptroller, the banking commissioner shall allow the bank to distribute the bank's remaining assets, if any, among its shareholders[, participants, or participant-transferees] as their ownership interests appear.

(d) After distribution of all remaining assets under Subsection (c), the bank shall file with the department:

(1) an affidavit and schedules, sworn to or affirmed by a majority of the bank's board [or managing participants], showing the distribution to each shareholder[, participant, or participant-transferee];

(2) all copies of reports of examination of the bank in its possession; and

(3) its original charter or an affidavit stating that the original charter is lost.

SECTION 52. Section 36.201(b), Finance Code, is amended to read as follows:

(b) A majority of the bank's directors[, managers, or managing participants] may voluntarily close the bank and place it with the banking commissioner for liquidation.

SECTION 53. Section 36.203(c), Finance Code, is amended to read as follows:

(c) The receiver has all the powers of the directors, [managers, managing participants,] officers, and shareholders [or participants] of the bank as necessary to support an action taken on behalf of the bank.

SECTION 54. Section 36.204(a), Finance Code, is amended to read as follows:

(a) A state bank, acting through a majority of its directors, [managers, or managing participants,] may intervene in an action filed by the banking commissioner closing a state bank to challenge the banking commissioner's closing of the bank and to enjoin the banking commissioner or other receiver from liquidating its assets. The bank must file the intervention not later than the second business day after the closing of the bank, excluding legal holidays. The court may issue an ex parte order restraining the receiver from liquidating bank assets pending a hearing on the injunction. The receiver shall comply with the restraining order but may petition the court for permission to liquidate an asset as necessary to prevent its loss or diminution pending the outcome of the injunction.

SECTION 55. Section 36.208, Finance Code, is amended to read as follows:

Sec. 36.208. RIGHTS FIXED. The rights and liabilities of the bank in liquidation and of a depositor, creditor, officer, director, [manager, managing participant,] employee, shareholder, [participant, participant-transferee,] agent, or other person interested in the bank's estate are fixed on the date of closing of the bank for liquidation except as otherwise directed by the court or as expressly provided otherwise by this subchapter or Subchapter D.

SECTION 56. Section 36.212(a), Finance Code, is amended to read as follows:

(a) Each bank affiliate, officer, director, [manager, managing participant,] shareholder, [participant, participant-transferee,] trustee, agent, servant, employee, attorney, attorney-in-fact, or correspondent shall immediately deliver to the receiver, without cost to the receiver, any record or other property of the bank or that relates to the business of the bank.

SECTION 57. Section 36.213(a), Finance Code, is amended to read as follows:

(a) On application by the receiver, the court with or without notice may issue an injunction:

(1) restraining a bank officer, director, [manager, managing participant,] shareholder, [participant, participant-transferee,] trustee, agent, servant, employee, attorney, attorney-in-fact, correspondent, or other person from transacting the bank's business or wasting or disposing of its property; or

(2) requiring the delivery of the bank's property or assets to the receiver subject to the further order of the court.

SECTION 58. Section 36.216, Finance Code, is amended to read as follows:

Sec. 36.216. PREFERENCES. (a) A transfer of or lien on the property or assets of a state bank is voidable by the receiver if the transfer or lien:

(1) was made or created less than:

(A) four months before the date the bank is closed for liquidation; or

(B) one year before the date the bank is closed for liquidation if the receiving creditor was at the time an affiliate, officer, director, or [manager, managing participant,] principal shareholder[, or participant] of the bank or an affiliate of the bank;

(2) was made or created with the intent of giving to a creditor or depositor, or enabling a creditor or depositor to obtain, a greater percentage of the claimant's debt than is given or obtained by another claimant of the same class; and

(3) is accepted by a creditor or depositor having reasonable cause to believe that a preference will occur.

(b) Each bank officer, director, [manager, managing participant,] shareholder, [participant, participant-transferee,] trustee, agent, servant, employee, attorney-in-fact, or correspondent, or other person acting on behalf of the bank, who has participated in implementing a voidable transfer or lien, and each person receiving property or the benefit of property of the bank as a result of the voidable transfer or lien, are personally liable for the property or benefit received and shall account to the receiver for the benefit of the depositors and creditors of the bank.

(c) The receiver may avoid a transfer of or lien on the property or assets of a bank that a depositor, creditor, or shareholder[, participant, or participant-transferee] of the bank could have avoided and may recover the property transferred or its value from the person to whom it was transferred or from a person who has received it unless the transferee or recipient was a bona fide holder for value before the date the bank was closed for liquidation.

SECTION 59. Section 36.301(a), Finance Code, is amended to read as follows:

(a) This section applies only to a claim by a person, other than a shareholder[, participant, or participant-transferee] acting in that capacity, who has a claim against a state bank in liquidation, including a claimant with a secured claim and a claimant under a fiduciary relationship who has been ordered by the receiver to file a proof of claim under Section 36.223.

SECTION 60. Section 36.308, Finance Code, is amended to read as follows:

Sec. 36.308. OBJECTION TO APPROVED CLAIM. The receiver with court approval shall set a date for objection to an approved claim. On or before that date a depositor, creditor, other claimant, or shareholder[, participant, or participant-transferee] of the bank may file an objection to an approved claim. The objection shall be heard and determined by the court. If the objection is sustained, the court shall direct an appropriate modification of the schedule of claims.

SECTION 61. Section 36.310(c), Finance Code, is amended to read as follows:

(c) As soon as practicable after the determination of all objections, appeals, and claims based on previously unliquidated or undetermined demands governed by Section 36.305, the receiver shall distribute the assets of the bank in satisfaction of approved claims other than claims asserted in a person's capacity as a shareholder[, participant, or participant-transferee].

SECTION 62. Section 36.312(b), Finance Code, is amended to read as follows:

(b) Assets shall be distributed in the following order of priority:

(1) administrative expenses;

(2) approved claims of secured creditors to the extent of the value of the security as provided by Section 36.304;

(3) approved claims of beneficiaries of insufficient commingled fiduciary money or missing fiduciary property and approved claims of depositors of the bank;

(4) other approved claims of general creditors not falling within a higher priority under this section, including unsecured claims for taxes and debts due the federal government or a state or local government;

(5) approved claims of a type described by Subdivisions (1)-(4) that were not filed within the period prescribed by this subchapter; and

(6) claims of capital note or debenture holders or holders of similar obligations and proprietary claims of shareholders[, participants, participant-transferees,] or other owners according to the terms established by issue, class, or series.

SECTION 63. Sections 36.313(a), (b), (c), and (d), Finance Code, are amended to read as follows:

(a) If bank assets remain after the receiver has provided for unclaimed distributions and all of the liabilities of the bank in liquidation, the receiver shall distribute the remaining assets to the shareholders [or participants] of the bank.

(b) If the remaining assets are not liquid or if they otherwise require continuing administration, the receiver may call a meeting of the shareholders [or participants and participant-transferees] of the bank. The receiver shall give notice of the meeting:

(1) in a newspaper of general circulation in the county where the home office of the bank was located; and

(2) by written notice to the shareholders [or participants and participant-transferees] of record at their last known addresses.

(c) At the meeting, the shareholders [or participants] shall appoint one or more agents to take over the affairs to continue the liquidation for the benefit of the shareholders [or participants and participant-transferees]. Voting privileges are governed by the bank's bylaws and articles of association. If a quorum cannot be obtained at the meeting, the banking commissioner shall appoint an agent. An agent appointed under this subsection shall execute and file with the court a bond approved by the court, conditioned on the faithful performance of all the duties of the trust.

(d) Under order of the court the receiver shall transfer and deliver to the agent or agents for continued liquidation under the court's supervision all assets of the bank remaining in the receiver's hands. The court shall discharge the receiver from further liability to the bank and its depositors, creditors, and shareholders[, participants, and participant-transferees].

SECTION 64. Section 37.004(b), Finance Code, is amended to read as follows:

(b) A bank or a director, [manager, managing participant,] officer, or employee of a bank does not incur liability or loss of rights because of a closing authorized by this chapter.

SECTION 65. Section 181.002(a)(7), Finance Code, is amended to read as follows:

(7) "Capital" means:

(A) the sum of:

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

(ii) the consideration set by the board [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 the part of that consideration that:

(a) has been actually received;

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

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

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

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

SECTION 66. Section 181.005(a), Finance Code, is amended to read as follows:

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

SECTION 67. Section 181.308(a), Finance Code, is amended to read as follows:

(a) Notwithstanding Section 21.218 or 101.502, [Article 2.44, Texas] Business Organizations Code [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.

SECTION 68. Section 182.009, Finance Code, is amended to read as follows:

Sec. 182.009. APPLICATION OF GENERAL CORPORATE LAW. (a) The [Texas] Business Organizations Code applies [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 trust association as if it were a for-profit corporation, and [the Texas Limited Liability Company Act (Article 1528n, Vernon's Texas Civil Statutes) applies] to a limited trust association as if it were a limited liability company, [as if they were part of this subtitle] to the extent not inconsistent with this subtitle or the proper business of a state trust company, except that:

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

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

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

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

(d) Notwithstanding Subsection (a), this subsection establishes governing law with respect to a state trust company organized before January 1, 2006:

(1) to the extent not inconsistent with this subtitle or the proper business of a state trust company:

(A) the Texas Business Corporation Act, the Texas Miscellaneous Corporation Laws Act (Article 1302-1.01 et seq., Vernon's Texas Civil Statutes), and any other law relating to general business corporations apply to a state trust company, and a reference in this subtitle to the Business Organizations Code is considered a reference to the prior law; and

(B) the Texas Limited Liability Company Act (Article 1528n, Vernon's Texas Civil Statutes) and any other law relating to a limited liability company organized in Texas apply to a limited trust association, and a reference in this subtitle to the Business Organizations Code is considered a reference to the prior law;

(2) the finance commission may establish rules permitting a state trust company to elect to be governed by the provisions of the Business Organizations Code to the extent not inconsistent with this subtitle or the proper business of a state trust company; and

(3) this subsection expires January 1, 2010.

SECTION 69. Section 182.021, Finance Code, is amended to read as follows:

Sec. 182.021. ACTIVITIES NOT REQUIRING CHARTER. Subject to Subchapter C, Chapter 187, a company does not engage in the trust business in a manner requiring a state charter by:

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

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

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

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

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

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

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

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

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

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

(11) engaging as a principal in the money services business [or agent in the lawful sale of checks] under a license issued by the banking commissioner under Chapter 151 [152];

(12) acting as trustee under a voting trust as provided by Section 6.251, Business Organizations Code [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 subtitle by rule of the finance commission;

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

(16) serving as trustee of a charitable trust as provided by Section 2.106, Business Organizations Code [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 or authorized under Title 11, Insurance Code;

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

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

SECTION 70. Section 182.101(d), Finance Code, is amended to read as follows:

(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 Organizations Code [Corporation Act] for the amendment or restatement of a certificate of formation by a for-profit corporation [articles of incorporation], except as otherwise provided by this subtitle or rules adopted under this subtitle. 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.

SECTION 71. Section 182.102(b), Finance Code, is amended to read as follows:

(b) A series of shares or participation shares may be established in the manner provided by the [Texas] Business Organizations Code [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 182.103. The state trust company shall file the original and one copy of the statement of action required by the [Texas] Business Organizations Code [Corporation Act] with the banking commissioner.

SECTION 72. Section 182.301, Finance Code, is amended to read as follows:

Sec. 182.301. 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 for-profit [business] corporation under the [Texas] Business Organizations Code [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 Organizations Code [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.

SECTION 73. Section 182.304, Finance Code, is amended to read as follows:

Sec. 182.304. RIGHTS OF DISSENTERS TO MERGER. A shareholder, participant, or participant-transferee may dissent from the merger to the extent and by following the procedure provided by the [Texas] Business Organizations Code [Corporation Act] or rules adopted under this subtitle.

SECTION 74. Section 182.501(b), Finance Code, is amended to read as follows:

(b) The merger or conversion must be made and approval of the state trust company's board, shareholders, or participants must be obtained in accordance with the [Texas] Business Organizations Code [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 rule. For purposes of this subsection, a conversion is considered a merger into the successor trust institution.

SECTION 75. Section 183.102, Finance Code, is amended to read as follows:

Sec. 183.102. BYLAWS. Except as provided by Section 183.207, each state trust company shall adopt bylaws and may amend its bylaws from time to time for the purposes and in accordance with the procedures set forth in the [Texas] Business Organizations Code [Corporation Act].

SECTION 76. Section 186.101(a), Finance Code, is amended to read as follows:

(a) A state trust company may initiate voluntary dissolution and surrender its charter as provided by this subchapter:

(1) with the approval of the banking commissioner;

(2) after complying with the provisions of the [Texas] Business Organizations Code [Corporation Act] regarding board and shareholder approval for voluntary dissolution; and

(3) by filing the notice of dissolution as provided by Section 186.102.

SECTION 77. Section 202.005(a), Finance Code, is amended to read as follows:

(a) The commissioner may:

(1) examine a bank holding company that controls a Texas bank to the same extent as if the bank holding company were a Texas state bank; and

(2) bring an enforcement proceeding under Chapter 35 against a bank holding company that violates or participates in a violation of Subtitle A [this subtitle], an agreement filed with the commissioner under this chapter, or a rule adopted by the finance commission or order issued by the commissioner under Subtitle A [this subtitle], as if the bank holding company were a Texas state bank.

SECTION 78. Section 274.001(1), Finance Code, is amended to read as follows:

(1) "Bank" has the meaning assigned by Section 31.002(a)(2) [2(c), Bank Holding Company Act of 1956 (12 U.S.C. Section 1841(c)) as amended], excluding a bank that does not have its main office or a branch located in this state.

SECTION 79. Section 274.003, Finance Code, is amended to read as follows:

Sec. 274.003. SUBSIDIARY TRUST COMPANY. An entity is a subsidiary trust company of a bank holding company if:

(1) the entity is a:

(A) trust company organized [corporation incorporated] under Subchapter A, Chapter 182; or

(B) bank that is organized to conduct a trust business and any incidental business or to exercise trust powers; and

(2) more than 50 percent of the voting stock of the entity is directly or indirectly owned by the bank holding company.

SECTION 80. Sections 31.002(a)(28), (36), and (41), 32.002(d), 33.201(b), 33.202, 33.203, 33.205, 33.207, and 35.007(d), Finance Code, are repealed.

SECTION 81. This Act takes effect September 1, 2007.

______________________________ ______________________________

President of the Senate Speaker of the House

I certify that H.B. No. 1962 was passed by the House on April 23, 2007, by the following vote: Yeas 141, Nays 0, 1 present, not voting.

______________________________ Chief Clerk of the House

I certify that H.B. No. 1962 was passed by the Senate on May 10, 2007, by the following vote: Yeas 31, Nays 0.

______________________________ Secretary of the Senate APPROVED: _____________________

Date

_____________________

Governor