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TITLE 7BANKING AND SECURITIES
PART 2TEXAS DEPARTMENT OF BANKING
CHAPTER 12LOANS AND INVESTMENTS
SUBCHAPTER ALENDING LIMITS
RULE §12.3Loans and Extensions of Credit

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

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

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

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

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

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

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

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

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

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

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

    (A) discharge in bankruptcy;

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

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

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

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

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

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

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

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

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

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

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

    (A) notwithstanding any requirement of Statement of Financial Accounting Standards No. 166 (Financial Accounting Standards Bd. 2009), for lending limit purposes, if the participation agreement provides that repayment must be applied first to the portions sold, a pro rata sharing will be considered to exist only if, in the event of default or comparable event provided in the agreement, the participants share in all subsequent repayments and collections in proportion to their actual percentage participation at the time of the occurrence of the event;

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

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

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

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

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

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

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

  (8) that portion of one or more loans or extensions of credit, not to exceed 15% of the bank's Tier 1 capital, with respect to which the bank has purchased protection in the form of a single-name credit derivative that meets the requirements of §12.2(a)(7) of this title (relating to Definitions) from an eligible protection provider if the reference obligor is the same legal entity as the borrower in the loan or extension of credit and the maturity of the protection purchased equals or exceeds the maturity of the loan or extension of credit.


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

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