Texas Administrative Code
Title 7. Banking and Securities
Part 2. Texas Department of Banking
Chapter 12. Loans and Investments
Subchapter A. Lending Limits
§12.7. Lease Financing.
(a) Loans to industrial development authorities. Pursuant to the
Finance Code, §34.201(b)(2), a loan or extension of credit
to an industrial development authority or similar public entity
created to construct and lease a plant facility, including a health
care facility, to an industrial occupant is considered a loan to
the lessee, provided that:
(1) the bank documents the basis for its reliance on the industrial
occupant as the primary source of repayment before the loan is
extended to the authority;
(2) the authority’s liability
on the loan is limited solely to whatever interest it has in
the particular facility;
(3) the authority’s interest
is assigned to the bank as security for the loan or the industrial
occupant issues a promissory note to the bank that provides a
higher order of security than the assignment of a lease; and
(4) the industrial occupant’s lease rentals are assigned
and paid directly to the bank.
(b) Loans to or leases purchased from leasing companies. Pursuant
to the Finance Code, §34.201(b)(2), a loan or extension of
credit to a leasing company for the purpose of purchasing equipment
for lease, or a lease purchased from a leasing company, is considered
a loan to the lessee, provided that:
(1) the bank documents the basis for its reliance on the lessee
as the primary source of repayment before the loan is extended
to, or lease is purchased from, the leasing company;
(2) the loan is made, or lease is purchased, without recourse
to the leasing company;
(3) the bank receives a security interest in the equipment and,
in the event of default, may proceed directly against the equipment
and the lessee for any deficiency resulting from the sale of the
equipment;
(4) the leasing company assigns all of its rights under the lease
to the bank;
(5) the lessee’s lease payments
are assigned and paid to the bank directly by the lessee; and
(6) the lease terms are subject to
the same limitations that would apply to a state bank acting
as a lessor under the Finance Code, §34.204.
Source: The provisions of this §12.7
adopted to be effective March 1, 1996, 21 TexReg 1383; amended
to be effective May 10, 2012, 37 TexReg 3395.
§12.9. Aggregation and Attribution.
(a) General rule. A loan or extension of credit to one borrower is attributed
to another person, and each person will be considered a borrower, if:
(1) proceeds of the loan or extension of credit are to be used
for the direct benefit of the other person, to the extent of the
proceeds so used, as provided by subsection (b) of this section;
(2) a common enterprise is deemed to exist between the persons
as provided by subsection (c) of this section; or
(3) the expected source of repayment for each loan or extension
of credit is the same for each person as provided by subsection
(d) of this section; or
(4) notwithstanding another provision
of this section, the banking commissioner determines that a loan
should be attributed to another person pursuant to the Finance
Code, §34.201(c).
(b) Direct benefit. The proceeds of a loan or extension of credit
to a borrower is considered used for the direct benefit of another
person and attributed to the other person if the proceeds, or assets
purchased with the proceeds, are transferred in any manner to or
for the benefit of the other person, other than in a bona fide
arm’s length transaction where the proceeds are used to acquire
property, goods, or services.
(c) Common enterprise.
(1) A common enterprise is considered to exist and loans to separate
borrowers will be aggregated in the case of:
(A) loans or extensions of credit made to affiliated borrowers
if substantial financial interdependence exists between or among
the borrowers; or
(B) loans made to separate persons for the purpose of acquiring
more than 50% of the voting securities or voting interests of a
business enterprise, in which case the acquisition loans are aggregated
and attributed to the business enterprise.
(2) For purposes of paragraph (1)(A)
of this subsection, borrowers are affiliated if one borrower
directly or indirectly controls, is controlled by, or is under
common control with another borrower. Substantial financial interdependence
exists if 50% or more of one borrower’s gross receipts or gross expenditures (on an
annual basis) are derived from transactions with the other borrower
and is presumed to exist, subject to rebuttal, if 25% or more of
one borrower’s gross receipts or gross expenditures (on an
annual basis) are derived from transactions with the other borrower.
Gross receipts and expenditures include gross revenues and expenses,
intercompany loans, dividends, capital contributions, and similar
receipts or payments.
(d) Source of repayment. The expected source of repayment for
each loan or extension of credit is considered the same if the
primary source of repayment is the same for each borrower. An employer
will not be considered a primary source of repayment under this
subsection solely because of wages and salaries paid to an employee,
unless the standards of subsection (c)(1) of this section are met.
(e) Loans to a corporate group. Pursuant to the Finance Code, §34.201(c),
loans or extensions of credit by a bank to a corporate group may
not exceed 60% of the bank’s Tier 1 capital. This limitation
applies only to loans subject to the general lending limit. For
purposes of this subsection, a corporate group is comprised of
a person and all of its subsidiaries, and a corporation or other
entity is a subsidiary of a person if the person owns or beneficially
owns directly or indirectly more than 50% of the voting securities
or voting interests of the corporation or other entity. Subject
to the special limit of this subsection, loans or extensions of
credit to a person and its subsidiary, or to different subsidiaries
of a person, are not aggregated or attributed to other members
of the corporate group unless either the direct benefit, common
enterprise, or source of repayment test is met.
(f) Loans to partnerships or partners.
(1) A loan or extension of credit to a partnership, joint venture,
or association is considered to be a loan or extension of credit
to each member of the partnership, joint venture, or association
other than those partners or members that, by the terms of the
partnership or membership agreement, are not held generally liable
for the debts or actions of the partnership, joint venture, or
association, provided those provisions are valid against third
parties under applicable law, and that have not otherwise agreed
to guarantee or be personally liable on the loan or extension of
credit.
(2) A loan or extension of credit to a member of a partnership,
joint venture, or association is generally not attributed to the
partnership, joint venture, or association, or to other members
of the partnership, joint venture, or association, except as otherwise
required by subsections (b)-(d) of this section, provided that
a loan or extension of credit made to a member of a partnership,
joint venture or association for the purpose of purchasing an interest
in the partnership, joint venture or association, is attributed
to the partnership, joint venture or association.
(g) Guarantors and accommodation parties. The derivative obligation
of a drawer, endorser, or guarantor of a loan or extension of credit,
including a contingent obligation to purchase collateral that secures
a loan, is not aggregated with direct loans or extensions of credit
to such drawer, endorser, or guarantor if the lending bank is relying
primarily on the creditworthiness of the primary obligor and none
of the tests set forth in this section are satisfied. The reliance
of the lending bank on the primary obligor must be evidenced by
the certification of an officer of the bank that the bank is, on
stated facts, relying primarily on the responsibility and financial
condition of the primary obligor for payment of the loan or extension
of credit and not on the guarantee, or commitment in whatever form,
of the guarantor, drawer, or endorser. In the event that the loan
or extension of credit to the primary obligor, considered by the
bank to be of sufficient credit quality at its inception, experiences
subsequent deterioration to the point that the primary obligor
is no longer performing in accordance with the terms of the initial
loan agreement, such event will not result in a lending limit violation
on behalf of the guarantor by virtue of the primary obligator’s
nonperformance. However, the total amount of the deteriorated loans
guaranteed by such accommodating person must be combined with all
other obligations of such guarantor in determining whether the
guarantor may obtain additional loans or extensions of credit from
the bank.
Source: The provisions of this §12.9
adopted to be effective March 1, 1996, 21 TexReg 1383; amended
to be effective September 6, 2007, 32 TexReg 5655; amended to
be effective May 10, 2012, 37 TexReg 3395.
§12.10. Nonconforming Loans.
(a) A loan or extension of credit, within a bank’s legal
lending limit when made, will not be considered a violation of
the applicable lending limit but will be cited as nonconforming
if the loan no longer complies with the bank’s legal lending
limit because:
(1) the bank’s Tier 1 capital
has declined;
(2) borrowers have merged or otherwise
become affiliated in such a way as to invoke aggregation under §12.9
of this title (relating to Aggregation and Attribution);
(3) the bank has merged with
another depository institution or the bank has purchased all
or substantially all of the assets of a failed depository institution
from the Federal Deposit Insurance Corporation as receiver of
such institution on or shortly after the date of its closing;
(4) the lending limit or capital definitions or standards have
changed after the date the loan or extension of credit was originated;
or
(5) collateral securing the loan or extension of credit to satisfy
the requirements of a special lending limit or lending limit exception
has declined in value.
(b) A bank must exercise reasonable efforts to bring a loan or
extension of credit that is nonconforming as a result of circumstances
described in subsection (a)(1)-(4) of this section into conformity
with the legal lending limit, consistent with safe and sound banking
practices. As a last resort, a bank may renew or restructure an
existing, nonconforming loan or extension of credit as a new, nonconforming
loan or extension of credit without violating the Finance Code
or this subchapter, unless:
(1) additional funds are advanced
by the bank to the borrower, except as permitted by §12.4(b)
of this title (relating to Loan Commitments);
(2) the original borrower is replaced by a new borrower; or
(3) the banking commissioner determines
that the renewal or restructuring of the loan or extension of
credit is designed to evade the bank’s
lending limit.
(c) A bank must bring a loan or extension of credit that is nonconforming
as a result of the circumstance described in subsection (a)(5)
of this section into conformity with the legal lending limit on
or before the 31st day after the nonconformity is discovered unless
judicial proceedings, regulatory action, or other extraordinary
circumstances beyond the bank’s control prevent the bank
from taking action.
Source: The provisions of this §12.10
adopted to be effective March 1, 1996, 21 TexReg 1383; amended
to be effective September 6, 2007, 32 TexReg 5655; amended to
be effective May 10, 2012, 37 TexReg 3395.
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