                            November    22,    1962


Honorable J. M. Falkner                Opinion No.    WW- 1479
Banking Commissioner
State Department  of Banking           Re:    Whether the Banking Board May
Capital National Bank Bldg.                   Conditionally Approve an Appli-
Austin,  Texas                                cation to Convert a National
                                              Bank to a State Bank Under the
                                              Stated Facts.

Dear   Mr.   Falkner:

       Your letter requests the opinion of this office on the question of
whether or not the State Banking Board may conditionally      approve an
application by,a national bank, located in a town with a population of
less than one thousand, for conversion   to a state bank when such national
bank currently has a capital stock of $25,000.00,     surplus of $25,000.00,
and undivided profits of approximately  $26,000.   00.

       Your specific question is whether or not the Banking Board may
conditionally  approve this application,   upon the assurance     in writing by
each stockholder    of the national bank that immediately   after such approval
by the Board, $12,500.00      %ewt* money,and $12,500.00       from the undivided
profits account will be transferred    to the capital account,    making a total
capital of $50,000.00.

       Art. 342-314  of the Banking Code of 1943 (added Acts 1955, 54th
Leg.,   p. 663, ch. 234, § 1) provides for the conversion of national banks
into state banks and reads,   in part, as follows:

             “A national bank or association      located in this state which
             follows the procedures     prescribed    by ,the laws of the United
             States to convert into a state bank, shall be granted a cer-
             tificate of incorporation   when the State Banking Board finds
             that the bank meets the standards as to location of office,
             capital structure and business      experience    of officers and
             directors   for the incorporation    of a state bank.     In consid-
             ering the application for conversion      from a national bank
Hon.   J. M.   Falkner,   page 2   (WW-1479)




          into a state bank the Board shall consider and deter-
          mine that the new bank meets with all the requirements
          of a new state bank applicant. . .‘I

          Turning to the requirements     for incorporation  of state banks,
we find the following standard in Art.     342-303  of the Banking Code:

             “No State bank shall be hereafter    chartered with
          capital less than the following recpirements,    nor shall
          any State bank be permitted to reduce its capital below
          such requirements   s said requirements    to be determined
          by the last Federal Census preceding the granting of the
          charter or the reduction in capital:

             (a) If domiciled in a city or town with not over six
          thousand (6, 000) population, a minimum capital of Fifty
         .Thousand Dollars ($50,000).   I1

          In considering an application filed for a new state bank charter,
the,State Banking Board, under Article     342-305  of the Banking Code, is
to determine   (among other issues) whether or not 19[t] he proposed capital
structure is adequate. ‘1 Article  342- 305 continues:

             “Should the State Banking Board determine any of the
         above issues adversely    to the applicants,  it shall reject
         the application.   Otherwise such Board shall approve the
         application and the Commissioner      shall, when the capital
         has been paid in in cash and the franchise     tax paid, deliver
         to the incorporators   a certified copy of the articles   of
         association,   and the bank shall come into corporate     exist-
         ence. . . ‘I (Emphasis   supplied)

          Specific authority for the conditional approval of applications
is found in the last sentence of Article  342-305,  reading as follows:

         ‘1. . . Provided,  however,  that the State Banking Board
         may make its approval of any application conditional,      and
         in such event shall set out such condition in the resolution
         granting the charter,   and the Commissioner     shall not de-
         liver the certified copy of the articles  of association  until
         such condition has been met, after which the Commissioner
Hon.   J. Id. Falkner,      page 3 ,(WW4479):       :




          shan in writing inform tlieSi+     Banking Board as to
          compliance  with such +nn%ion     and delivery, of the arti-
          cles Of~assuGiat.ien. . .”    >* + .i ~‘~    :.

         We are of the opinion that :the.foregoiag previsions of Article
342- 305 apply DOthe coawersim hape coasidered .and that ,tbey authoriae
the conditional   apprwal     ,af the application       by the ELoard. ‘St&         approval
violates neither Art. 342-303, sups, :tior :Sectiam 16 ‘of Article 16 ~of
the~Constitution ,of Texas, which, pr,ovides that no state bank,, “shall be
chartered until all of the,,authorized      capital stock has been subscribed
and paid for in fall in cash. ” The bank here considered            will not be
 “chartered”    as a~State bank until a certified copy of the articles          of as,-
sociation has been delivered to the dire,ctors by the Banking Commissicmat~.
“The laws under which a’bankfng corporation           is formed,     together with its
articles   of incorporation.    constitute. its charter.”     9 C. J.S. 79, Banks
.and Banking, ,Sec. 42.      In State Banking Board of Texas v. Mc~CuIloch,
 316s. W. 2d 259, (Civ. A@. 1,958. error ref.,         n. r. e. ), the court had be-
fore it the question of whether a Board order of AuguBt lst, apprwing                   a
chatter,   became fiil     before an order ,of Augusi 2nd reversed          it.    The
court etated:

              “The    rule applicable   here is stated       by Judge Speer
          in his .Law of Banks and Banking in Texas,              Sec. 28, to
          be that:

             ‘The Banking Baar~dmay rescind its order apprwing
          and authorizing the delivery~ of a charter at any ‘time be- :
          fore the actual delivery has ‘been made by the Commissioner..’

              “Here    no charter   had been delivered.        ”
                                                                              ,,,        ,,
In view of thes.e authorities   and the language of Art: .3&Z- 305 prwiding    that
a~bank shall not come into existence until a certified copy of the articles
of association  has been derivered by the Commissioner       to the incorpora-
tors (or the directors   in this case), we are ,of the opinion that the Board
may ,conditionally apprwe the application here considered.

          This opinion is~limited solely to the facts stated in your request
with regar~d to the capital structure of ~the applicant land does not relieve
the applicant of satisfying  all other requirements    of state and federal law.
Hon. J. M. Falkner,    page 4    (Ww-1479)




                                SUMMARY            ,.


                The State Banking Board may approve an ap-
            plication for .conversion from a national bank to
            a state bank status upon condition that the full
            amount of the required capital shall have been
            paid in, in cad,   prior to the, time the dir.ectorB
            are delivered a certified copy,of the articles of
            association’by the Banking Commis,sioner.

                                          .Your~   very truly,

                                          WILL WILSON
                                          Attorney General of Texas



                                          BY        Id&
                                               Dudley D. $+f&alla
                                               Assistant: Attorney ,General

DDM: lmc

APPROVED:

OPINION COMMITTEE:

W. ,V. Geppert,   Chairman
Iola Wilcox
L. P. Lollar

REVIEWED FOR THE ATTORNEY            GENERAL
BY: Leonard Passmorc
