ARKANSAS STATE BANK DEPARTMENT Rules and Regulations Updated: August 1, 2007 April 2, 2007 Agency # 210.00 ARKANSAS STATE BANKING BOARD Position Classification Entitled Incumbent Term Congressional Number of Position to Nominate Expires District 1 Bank Dept. Bank Marcus J. 12-31-2009 4 Member Commissioner McCain 2 Arkansas Bankers John 12-31-2010 1 Bankers Association Freeman Association Member 3 Arkansas Bankers David 12-31-2007 3 Bankers Association Short Association Member 4 Public Governor Elmer 12-31-2008 State at Member Flucht Large 5 Public Governor Creed 12-31-2011 2 Member Spann 6 Public Governor Margie 12-31-2008 State at Member Russ Large September 1, 2005 Agency # 210.00 LEGAL HOLIDAYS The following are legal holidays for all purposes: New Year's DayJanuary 1; Robert E. Lee's BirthdayThird Monday in January; Martin Luther King's BirthdayThird Monday in January; George Washington's BirthdayThird Monday in February; Memorial Daythe last Monday in May; Independence DayJuly 4; Labor DayFirst Monday in September; Veteran's DayNovember 11; Thanksgiving DayFourth Thursday in November; Christmas EveDecember 24; Christmas DayDecember 25. Pursuant to A.C.A. § 15101 it is provided that holidays falling on Saturday will be observed on the preceding Friday and holidays falling on a Sunday will be observed the succeeding Monday. ******************************************************************************* The Arkansas Code of 1987, as amended (including the Arkansas Banking Code A.C.A. § 23-45-101 through A.C.A. § 23-50-110) is accessed Online at www.arkleg.state.ar.us ******************************************************************************* TABLE OF CONTENTS ARKANSAS STATE BANK DEPARTMENT www.accessarkansas.org/bank STATE BANK DEPARTMENT-GENERAL PROVISIONS RULES AND REGULATIONS Request for documents 1.1 Fees for copies provided pursuant to request 1.1 Confidential or non-confidential status of Bank Department records 1.1 Legal holidays; Applicable law 1.2 Certified copies and certificates of good standing fees 1.2 Interest in state banks; Participation in 1.3 PROCEEDINGS BEFORE THE BOARD AND COMMISSIONER Applications 1.3 Applications. Facsimile 1.3 Meetings of the Board; Regular meeting dates 1.3 Publication requirements (applications before Board) 1.4 Application filing fees (filed with Board) 1.4 Application filing fees(not filed with Board) 1.4 Hearings. Filing fees for written/official protests 1.5 Adjudicative Hearings 1.5 Rehearing modifications 1.7 Assessment Fees 1.7 Retention of Records 1.8 Appeal of Commissioner decision on minimum capital requirements to Board 1.11 GENERAL POWERS OF BANKS Warehousing mortgages and other loans 2.1 Incidental powers 2.1 Gift Cards 2.1 Wild card statute 2.4 Disposition of income from sale of credit life insurance or debt cancellation contracts 2.4 Guaranties 2.5 Computer services of bank or operating subsidiary 2.6 Messenger service 2.6 Power to borrow 2.6 Charter Amendment Application for Change of Bank Corporate Name 2.7 Reservation of Bank Corporate Name 2.7 Capital notes 2.8 Federal regulations 2.8 INVESTMENTS Investment, corporate debt obligation 4.1 Permissible exceptions. Common stock. Trust preferred securities 4.1 Investment--Consumer paper 4.2 Revenue obligations 4.2 Trading account 4.3 State Banking Board requirements 4.3 Bank service companies 4.5 Limitation on investment 4.5 LOAN LIMITS Certificates of reliance--Endorsed or guaranteed obligations 5.1 Combining loans to parent corporation and subsidiary; loans to separate subsidiaries 5.1 Drafts or bills of exchange 5.2 Obligations drawn against existing values 5.2 Obligations secured by certain transferable documents of title 5.2 Obligations guaranteed by Farm Service Agency 5.2 Loans secured by certificate of deposit 5.3 Loan commitments and standby letters of credit 5.3 TRUST POWERS Activities not requiring trust powers 7.1 Federal Deposit Insurance Corporation and Federal Reserve approval 7.1 Title to trust securities in name of nominee 7.1 Common trust fund 7.1 Individual retirement account 7.2 Keogh plan 7.2 Trust deposits awaiting investment 7.2 Bank as trustee; voting of own shares 7.3 Trust policies 7.3 FIDUCIARY POWERS OF STATE BANKS Fiduciary powers of state banks and collective investment funds 7.4 Definitions 7.4 Account 7.4 Custodian under Uniform Gifts to Minors Act 7.4 Fiduciary 7.4 Fiduciary powers 7.4 Fiduciary records 7.4 Guardian 7.4 Investment authority 7.4 Local law 7.4 Managing agent 7.4 State bank 7.4 Trust department 7.5 Adoption of Policies and Procedures with Respect to Brokerage Placement Practices 7.5 Administration of Fiduciary Powers 7.5 Books and Accounts 7.6 Audit of Trust Department 7.7 Investment of Funds Held as Fiduciary 7.7 Self-dealing 7.7 Custody of Investments 7.8 Deposit of Securities with State Authorities 7.9 Compensation of Bank 7.9 Receivership of Voluntary Liquidation of Bank 7.9 Surrender or Revocation of Fiduciary Powers 7.10 COLLECTIVE INVESTMENT FUNDS Collective Investment 7.10 CHANGE IN CONTROL Transfers affecting change in control 8.1 Time for Commissioner’s ruling 8.1 Anti-competitive Acquisitions 8.1 DIVIDENDS Dividends; Prior approval; 8.2 STOCK ISSUE AND TRANSFER ISSUE OF STOCK Payment for stock 8.2 Discriminatory sale of stock 8.2 Common and preferred; Voting, nonvoting 8.2 Fractional shares; Scrip 8.3 Preemptive rights 8.3 Waiver of preemptive rights 8.4 Stock issuance to be reported 8.4 Transfers to be reported 8.4 Information required on reported transfers 8.4 STOCKHOLDERS’ MEETINGS Proxy voting 8.5 Notice of meeting 8.5 Cumulative voting 8.5 DIRECTORS AND STOCKHOLDERS Board of directors 8.6 Officers or director removal 8.6 Officers or director removal – Cease & Desist 8.6 Directors meetings 8.6 RESERVES OF BANKS Penalty--Failure to maintain reserve 8.7 BRANCH BANKS Bank Fictitious Names 9.1 FULL SERVICE BRANCHES; LIMITED PURPOSE OFFICES Healthy Bank 9.2 Relocation of Existing Full Service Branch 9.2 Short Distance Relocation 9.3 Limited purposes offices 9.4 Expedited, Standard, and Mobile Branch Application Procedures 9.5 Mobile Branch 9.7 Protest 9.7 PLAN OF EXCHANGE Authority to adopt plan of exchange--Notice--Court reporter 11.1 Court reporter required 11.1 DISSOLUTION AND LIQUIDATION Execution and filing articles with Department. Certificate of Dissolution. Fees 11.1 Voluntary liquidation 11.1 Voluntary liquidation. Surrender of charter 11.1 POLICY REQUIREMENTS Loan policy 12.1 LOAN PARTICIPATION POLICY Loan participation policy 12.1 Guidelines when purchasing 12.2 Independent credit analysis 12.2 Transfers of credit information 12.2 Recourse arrangements 12.3 Loan loss reserve required 12.4 Investment policy 12.4 Asset/Liability management policy 12.4 POLICY STATEMENTS – ORDER OF THE BANK COMMISSIONER Financial Subsidiary – May 3, 2000 13.1 Bank Purchases of Life Insurance – April 7, 2003 13.2 Debt Cancellation Contracts & Debt Suspension Agreements – July 14, 2003 13.18 Merger or Consolidation – December 12, 2006 13.28 Bank Investment in Limited Liability Companies or Limited Liability Partnerships - July 20, 2007 13.29 Loan Production Office – Activities Permitted – July 20, 2007 13.30 Indemnification of Officers, Directors – July 20, 2007 13.32 Definition of Capital, Surplus, and Undivided Profits (Legal Lending Limits) – July 20, 2007 13.35 ADMINISTRATIVE POLICIES Administrative Policy #001 14.1 Administrative Policy #002 - Revised 14.4 Administrative Policy #003 - Revised 14.6 Administrative Policy #004 14.12 Administrative Policy #005 14.14 Administrative Policy #006 14.17 Administrative Policy #007 - Revised 14.23 Administrative Policy #008 14.25 COUNTY AND REGIONAL INDUSTRIAL DEVELOPMENT CORPORATIONS A.C.A. § 15-4-1201 through A.C.A. § 15-4-1228 Purpose 15.1 Information 15.1 Definition of Impairment of Assets or Capital 15.2 Assessment fees 15.2 Application Requirements 15.2 TRUST INSTITUTIONS REGULATIONS A.C.A. § 23-51-101 through A.C.A. § 23-51-211 Fees 16.1 Assessments, Examination Fees 16.1 Confidential Information 16.1 Bonding Requirements – State Chartered Trust Company 16.2 Transfer of Stock – State Chartered Trust Company 16.2 August 1, 2007 Agency # 210.00 SECTION 1 STATE BANK DEPARTMENT - GENERAL PROVISIONS 46-101.1 - REQUESTS FOR DOCUMENTS (Reference A.C.A. § 23-46-101) Requests for non-confidential documents may be made by filling out a request form provided by the department. Telephone requests may be accepted. 46-101.2 - FEES FOR COPIES PROVIDED PURSUANT TO REQUEST (Reference A.C.A. § 23-46.101) Copies of documents provided pursuant to request from the public or in the case of subpoena (if the copies are of confidential records) will be provided based upon the following fee schedule: * regular copies - $ .50 per page; * certified copies - $1.00 per page; * microfilm copies - $1.00 per page; * faxed copies - $ .50 per page extra. 46-101.3 - CONFIDENTIAL OR NON-CONFIDENTIAL STATUS OF BANK DEPARTMENT RECORDS (Reference A.C.A. § 23-46-101) A. The names of stockholders of a bank or bank holding company will not be regarded as confidential. The stockholder’s list of a bank or bank holding company will not be regarded as confidential. B. Articles of Agreement and Incorporation and all amendments are not confidential. C. Stock Transfers. A onepage request form submitted to the Commissioner requesting a transfer of bank stock from one stockholder to another. However, any information submitted to the Commissioner, including any personal financial statements, along with the request will be regarded as confidential and is not subject to disclosure. D. Applications. All applications submitted to the Commissioner may be disclosed to anyone with the exception that personal financial statements submitted in support of such applications shall be regarded as confidential and are not subject to disclosure. E. Examination Reports. Examination reports are highly confidential and are not subject to public disclosure. Such examination reports are regularly submitted to the federal regulatory authorities and/or other state financial institution regulatory authorities, as well as to the August 1, 2007 Agency # 210.00 examined bank as a matter of regulatory process. However, the examination reports remain the property of the Department and, as such, the report, as well as all correspondence between regulatory authorities and the examined bank in respect to the examination report, is confidential, A.C.A. § 23-46-101. F. Investigation Reports. An investigation made by a bank examiner assigned to investigate the merits of an application, or other bank matter, is generally considered as confidential. The exception being that the Commissioner, in his/her discretion, reserves the right to permit an investigation on the merits of an application to be reviewed by the applicant and an official protestant to an application and permit introduction into evidence, by a party to the proceeding, those portions of the investigation which may be necessary and relevant to that proceeding. G. Corporate "File". A bank's corporate file contains the following: Articles of Incorporation, Amendments to Articles of Incorporation, Oaths of Directors, list of stockholders. The file is subject to disclosure with the exception of any information in support of a petition for a stock transfer since such supportive information is confidential. H. Financial Statements. Personal financial statements shall not be exhibited to the public. LEGAL HOLIDAY (BANK) 48-103.1. - LEGAL HOLIDAY; APPLICABLE LAW (Reference A.C.A. § 23-48-103) The legal holidays applicable to state banks shall be those holidays set forth in A.C.A. § 1-5-101 and such other holidays as shall be established from time to time by the Board of Governors of the Federal Reserve System. A state bank is not required to close on any legal holiday. A bank may close one business day of each week in which event the day of such closing is deemed a legal holiday and not a business day. Business transacted on a holiday is binding and shall have the same effect as if transacted on the next succeeding business day. All items payable on a legal holiday shall be deemed to be payable on the day next succeeding the holiday. 46-203 - CERTIFIED COPIES AND CERTIFICATES OF GOOD STANDING FEES (Reference A.C.A. § 23-46-203) Certified copies of records and papers furnished to an individual by the State Bank Department will be charged at a rate of $1.00 per page. Certificates of Good Standing provided by the State Bank Department will be charged at $50.00 per certificate. September 1, 2005 Agency # 210.00 46-207.1 - INTEREST IN STATE BANKS; PARTICIPATION IN (Reference A.C.A. § 23-46-207) State Bank Department employees, subject to A.C.A. § 23-46-207, may be a depositor in any financial institution the Department regulates and may participate in overdraft programs associated with such deposit relationships so long as participation in such programs are regularly offered as a customer service of the institution. PROCEEDINGS BEFORE THE BOARD AND COMMISSIONER 46-304.1 – APPLICATIONS (Reference A.C.A. § 23-46-304) The Commissioner and the State Banking Board rule that applications forms provided by the State Bank Department for various applications will request information required for submission of an application to the Board or the Commissioner. The Board and the Commissioner reserve the right to request additional information as necessary to consider an application. 46-305.1 – APPLICATIONS/DOCUMENTS (Reference A.C.A. § 23-46-305) The Commissioner and the State Banking Board may permit applications and supporting documentation, or any other documents to be submitted to the State Bank Department in original paper document format, photographic format, or electronic format, which has been determined as acceptable by the Commissioner. 46-402.1 - MEETINGS OF THE BOARD; REGULAR MEETING DATES (Reference A.C.A. § 23-46-402) Meetings of the State Banking Board will be held in offices of the State Bank Department, except in the case of meetings at which a large attendance is anticipated. In such a situation, the Commissioner will arrange for a meeting in outside quarters where a larger space is available. Regular meetings of the Board may be scheduled four (4) times a year. These meetings will be held at 10:00 a.m. on the third Thursday of January, April, July, and October, but if, in the opinion of either the Commissioner or chairman of the State Banking Board, any necessitous reason exists for changing the date of a regular meeting, either said Commissioner or chairman may reset the meeting for a different date after giving notice as required in these regulations for the call of a special meeting. All meetings are public except when the members meet in executive session as permitted under the Arkansas Freedom of Information Act. April 2, 2007 Agency # 210.00 46.403.1. - PUBLICATION REQUIREMENTS. APPLICATIONS BEFORE THE STATE BANKING BOARD (Reference A.C.A. § 23-46-403) Sponsors of the following applications must publish notice of the proposed application three (3) times at equal intervals in a newspaper of statewide circulation. Publication shall be as close as practicable to the date the application is filed with the State Bank Department, but no more than ten (10) calendar days prior to or after the filing date. Publications must provide for a fifteen (15) day comment period beginning with the actual filing of the application. These applications are: (1) New state bank charters; (2) Merger or consolidation applications between one or more banks, or saving and loan associations into a state bank; (3) Purchase or assumption application (over 50% of the assets or liabilities) of another depository institution; and (4) Change of a state bank’s main banking office from one municipality to another (Simple or Complex Application). 46-404.1 - APPLICATION FILING FEES. APPLICATIONS TO BE PRESENTED TO THE STATE BANKING BOARD (Reference A.C.A. § 23-46-404) Following is a list of application filing fees: a) New bank charter $8,000 b) Merger applications (per institution) $5,000 c) Conversion (national bank to state bank) $8,000 d) Conversion (stock savings and loan or federal savings bank to state bank) $8,000 e) Charter amendments $ 200 f) Charter amendments for trust powers $ 500 g) Purchase or assumption $5,000 (over fifty percent (50%) of assets or liabilities of another depository institution) h) Relocation of main office (from one municipality to another)(Application does not include any reorganization or change of bank business plans – must be simple relocation of address only) $2,500 i) Reorganization and Relocation of Bank Charter (Complex Application) $6,500 46-404.2 - APPLICATION FILING FEES. APPLICATIONS WHICH ARE NOT FILED WITH THE STATE BANKING BOARD (Reference A.C.A. 23-46-404) a) New branch banking office (Expedited branch application) A.C.A. § 23-48-703 $ 300 b) New branch banking office (Standard branch application) A.C.A. § 23-48-703 $ 500 c) New branch banking office (Mobile branch application) A.C.A. § 23-48-703 $ 300 d) Plan of exchange $ 500 (plus expenses of Commissioner; does not include costs associated with appraisals of bank stock) e) Filing of fictitious name $ 25 f) Filing of out-of-state bank/bank holding company $ 300 April 2, 2007 Agency # 210.00 g) Change in Control $5,000 h) Purchase or Assumption (less than fifty percent (50%) of assets or liabilities) $ 300 i) Registered Agent for Service of Process A.C.A. § 23-48-327 $ 25 46-406.1 - HEARINGS. FILING FEES FOR WRITTEN/OFFICIAL PROTESTS (Reference A.C.A. § 23-46-406) a) A filing fee of $2,500 will be required to file an official protest for the following applications: 1) New bank charter; 2) Merger application; 3) Purchase or assumption (over fifty percent (50%) of assets or liabilities); 4) Conversion (national to state bank); 5) Conversion (stock savings and loan or federal savings bank to state bank); 6) Relocation of main office (from one municipality to another)(Simple Application); and 7) Reorganization and Relocation of Bank Charter (Complex Application). b) A filing fee of $500 will be required to file an official protest for a new branch banking office application (standard branch application) (A.C.A. § 23-48-703). c) A filing fee of $300 will be required to file an official protest for the following applications: 1) Purchase or Assumption (less than fifty percent (50%) of assets or liabilities; 2) New branch banking office application (expedited branch application) A.C.A. § 23-48-703; and 3) New branch banking office application (mobile branch application) A.C.A. § 23-48-703. 46-406.2 ADJUDICATIVE HEARINGS BEFORE THE STATE BANKING BOARD AND/OR THE COMMISSIONER (Reference A.C.A. § 23-46-406) The following rules shall apply to adjudicative hearings before the State Banking Board and/or the Commissioner: (a) Public Hearing at Commissioner’s Discretion. The Commissioner at his/her discretion, regardless of whether any formal protest or letters of opposition were filed, may hold a hearing on an application. (b) Decision Maker. April 2, 2007 Agency # 210.00 1) Matters Before the State Banking Board. When an adjudicative hearing is conducted before the State Banking Board, the Board Chairman will conduct the hearing. The State Banking Board, collectively, will act as the decision maker. 2) Matters Before the Commissioner. When an adjudicative hearing does not involve the State Banking Board, the Commissioner reserves the right to act as decision maker or have a decision maker appointed. In the event the Commissioner decides to act as the decision maker, but is unable to conduct the hearing, a Deputy Commissioner will conduct the hearing. In the event the Commissioner decides to have a decision maker appointed, a list of five (5) potential decision makers will accompany the notice of the hearing sent to the parties entitled to notice by mail. This list will be compiled by the Commissioner. All parties will receive the same list of five (5) potential decision makers. Two (2) potential decision makers are to be chosen from the list and communicated by facsimile or hand delivery to the Commissioner within two (2) business days of receipt. The Commissioner may authorize an employee of the Arkansas State Bank Department to be served in the event of hand delivery. The Commissioner will then choose a decision maker to conduct the hearing from those potential decision makers submitted by the parties receiving notice by mail. The Commissioner will choose a decision maker from those submitted, even if not all parties submit decision makers. If no parties submit potential decision makers to the Commissioner, the Commissioner will choose a decision maker from the original list sent with the notice. (c) Hearing Procedures. For the purpose of the actual hearing, the following rules will govern: 1) The decision maker may rule on motions, require briefs, and issue such orders as will ensure the orderly conduct of the proceedings; 2) All objections must be made in a timely manner and stated on the record; 3) Subject to terms and conditions prescribed by the Administrative Procedure Act, parties have the right to introduce evidence on issues of material fact, cross-examine witnesses as necessary for a full and true disclosure of the facts, present evidence in rebuttal, and, upon request of the decision maker, may submit briefs and engage in oral argument; 4) The decision maker is charged with maintaining the decorum of the hearing and may refuse to admit, or may expel, anyone whose conduct is disorderly; and 5) The hearing will be held in accordance with the Administrative Procedure Act. (d) Order of Proceedings. The decision maker will conduct the hearing in the following manner: April 2, 2007 Agency # 210.00 1) The decision maker will give an opening statement, briefly describing the nature of the proceedings; 2) The parties are to be given the opportunity to present opening statements; 3) The parties will be allowed to present their case in the sequence determined by the decision maker; 4) Each witness must be sworn or affirmed by the decision maker, or the court reporter, and be subject to examination and cross-examination as well as questioning by the decision maker. The decision maker may limit questioning in a manner consistent with the law; and 5) When all parties and witnesses have been heard, parties may be given the opportunity to present final arguments. (e) Court Reporter. In the event of a hearing before the State Banking Board and/or the Commissioner, the Arkansas State Bank Department will arrange for a court reporter to be present for the hearing. The applicant will be responsible for paying the costs of the court reporter appearing at the hearing and for copies of the transcript. The applicant will provide a copy of the transcript, free of charge, to the Arkansas State Bank Department. (f) Order of Decision Maker. The decision maker will issue an oral ruling at the conclusion of the hearing or a letter opinion within a reasonable time after the conclusion of the hearing. The prevailing party will then have ten (10) days from the date of the oral ruling or letter opinion to prepare and submit a written order to the Commissioner and the opposing party(s). Upon receipt of the written order by the Commission, the opposing party(s) will then have ten (10) days to object to the form or precedent. (g) Expiration of Approval. The decision maker’s Order approving and application shall expire eighteen (18) months from the date of the approval. Upon written request, the Commissioner may approve an extension of the eighteen (18) months. 46-407.1 - REHEARING MODIFICATIONS (Reference A.C.A. § 23-46-406) The State Banking Board and the Commissioner take the position that until the Findings of Fact, Conclusions of Law, and written decision have been served on the parties, the Board has the power to reverse, modify, or rehear a decision formerly reached. 46-509.1 – ASSESSMENT FEES (Reference A.C.A. § 23-46-509) The State Banking Board and the Bank Commissioner require that assessment fees payable on a semi-annual basis to the State Bank Department be remitted by automated processing as established by the Bank Commissioner. Exceptions for payment of assessment fees by any other method than the automated method established by the Department must be upon prior request and approval by the Bank Commissioner. Exception requests will only be approved on an extraordinary basis. April 2, 2007 Agency # 210.00 46-511.1 - BANK RETENTION OF RECORDS (Reference A.C.A. § 23-46-511) Arkansas state banks are required to maintain the following records permanently: a) Minute books of meeting of stockholders and directors; and b) Capital stock ledger and capital stock certificate ledger or stocks. All records, other than those described in part a) and b) shall be retained as follows: Examination reports permanent Call reports permanent General ledger permanent Accounts payable 7 years GENERAL Customer relationship contract, after closing Signature cards 10 years Loan applications - Consumer 25 months Loan applications – Business 12 months Overdraft loan agreement 6 years Safe deposit agreement 10 years Night depository agreement 1 year Financial activity records Deposit tickets 10 years Buy/sell orders for securities (after maturity) 3 years Withdrawal receipts 10 years Cash letters 1 year Stop payment orders 6 years Safekeeping receipts 7 years Wire transfer receipts 6 years Safe deposit access records 7 years Accounting records of financial activity Transaction journal 7 years Note and discount register 10 years Draft register 10 years Dividend Checks 10 years Reconciliation record of account activity Customer statements 6 years Checks paid 7 years Supporting and specialized documentation Collateral records or receipts 10 years Amortization records to maturity Credit files 6 years Account analysis records 3 years April 2, 2007 Agency # 210.00 Proof sheets 3 years Overdrafts 4 years Trial balance 4 years Return or exception items 5 years Transit letters 3 years 1099 forms 5 years DEPOSITS Evidence of compliance with Electronic Funds Transfer Act 2 years Currency transactions over $10,000 reports 5 years Exemption reports and written statements for currency Transactions over $10,000, after removal from exemption list 5 years Taxpayer identification records for certificates of deposit, After redemption 6 years Signature cards for deposit accounts verifying identity of signer 10 years Statements or ledger cards for deposit accounts 6 years Checks, drafts, and money orders over $100 except for accounts Which average 100 checks per month and fall into one of these Categories; payroll, dividend, employee benefit, insurance claims, Medical benefits, government agency, brokers or dealers in Securities, fiduciary accounts, pension or annuity checks, and Checks drawn on other financial institutions 6 years Certificates of deposit records, purchased 5 years Certificates of deposit records, redeemed 10 years Deposit slips or credit tickets for transactions over $100 that identify amount of currency transacted 10 years LOANS GENERAL Credit extension records for transactions over $10,000, excluding real estate required by the Bank Secrecy Act (formerly $5,000) 5 years COMMERCIAL Standby letters of credit records (Regulation H) Not specified April 2, 2007 Agency # 210.00 INSTALLMENT/CONSUMER Credit evaluations required by Equal Credit Opportunity Act and Regulation B, after notification or final disposition Consumer 25 months Business 12 months Evidence of Compliance with Consumer Credit Protection Act Title IX for EFTS services Until final disposition Evidence of compliance with Truth in Lending requirements (Regulation Z), after disclosure 3 years INVESTMENTS Municipal securities deal transactions records. Forms MSD4 and Forms MSD5 (Regulation H), after disclosure 3 years Broker/deal transactions and commission records, customer account records and related correspondence 3 years Credit information relating to public and investment securities 3 years Records of lost or stolen securities 3 years Transaction records for brokers and dealers extending credit (Regulation T) 3 years TRUST Fiduciary records, after termination of account or settlement of litigation permanent Investments of each trust account shall be kept separate from the assets of the bank 10 years OTHER RECORDS NOT SPECIFIED 6 years All records as noted in Act 89 of 1997 may be retained by photographic or other reproduction methods in lieu of retention of original records. April 2, 2007 Agency # 210.00 48-310.1 - APPEAL OF COMMISSIONER DECISION ON MINIMUM CAPITAL REQUIREMENTS TO STATE BANKING BOARD (Reference A.C.A. 23-48-310) A state bank may appeal an order of the Commissioner to increase its capital stock to the Arkansas State Banking Board. Notice of the bank’s request for appeal must be served upon the Commissioner and the members of the State Banking Board by personal service or certified mail within ten (10) days of the date the Commissioner’s order was issued. A public hearing on the appeal will be held as soon as practicable by the State Banking Board. Notice of the hearing will be given twenty (20) days prior to the date of the hearing stating the time, date, and location of the hearing. Notice will be provided by United States mail to the parties to the appeal and published one time in a newspaper of statewide circulation. The bank requesting such an appeal will be required to provide a court reporter and transcript of the hearing to the Arkansas State Banking Board free of charge. August 1, 2007 Agency # 210.00 SECTION 2 GENERAL POWERS OF BANKS 47-101.1. - WAREHOUSING MORTGAGES AND OTHER LOANS (Reference A.C.A. § 23-47-101) A.C.A. § 23-47-101(a)(14)permits state banks “to warehouse or act as agent in warehousing mortgages and other loans;”. The aggregate of mortgages or other loans shall not be applied against the legal lending limit if the state bank is acting as agent in warehousing mortgages or other loans for a subsidiary. 47-101.2 - INCIDENTAL POWERS (Reference A.C.A. 23-47-101) A.C.A. §23-47-101(b) reads: "In addition to the foregoing, a bank may exercise any other powers which are incidental to the business of banking.” This statutory reference to incidental powers is very similar to the National Banking Act. The Commissioner and the Banking Board may give consideration to the interpretations of similar words in the National Bank Act by the Comptroller of the Currency, but shall not utilize this section to permit the exercise of any power or performance of any activity which is beyond the reasonable progression of the business of banking as authorized in the Arkansas Code. 47-101.2(a) GIFT CARD DISCLOSURES (Reference OCC Bulletin 2006-34). The State Banking Board, pursuant to Act 304 of 2007, adopts the following guidance on disclosure and marketing issues for the sale of gift cards issued by the Office of the Comptroller of the Currency, August 14, 2006: PURPOSE AND SCOPE This bulletin is intended to provide guidance to national banks on a number of disclosure and marketing issues presented by gift cards, so that national banks that issue gift cards do so in a manner in which both purchasers and recipients of gift cards are fully informed of the terms and conditions of the product.1 BACKGROUND A gift card is a type of prepaid or stored value card that is designed to be purchased by one consumer (purchaser) and presented as a gift to a second consumer (recipient).2 The terms and August 1, 2007 Agency # 210.00 conditions of different gift card products can vary significantly, but gift cards are generally divided into two main categories: retail gift cards and bank-issued gift cards. A retail gift card is typically offered by a major retail, entertainment, or food service company, to be used at establishments owned and operated by that company. A bank-issued gift card is typically issued by a financial institution, carries the logo of a payment card network such as VISA, MasterCard, or American Express, and can be used at the various locations that accept cards from that network.3 A bank-issued gift card is typically a bank product, and not merely an arrangement through which a third party can facilitate the use of its product in a payment card network. When a gift card is a bank product, the consumer’s agreement is with the bank, and the gift card and the related disclosures, the cardholder agreement, and other documentation will specifically identify the bank as the issuer of the card. In addition, the bank generally will establish and impose the fees and other terms associated with the card and control the net proceeds of such fees; will be the party with the financial responsibility to merchants that honor the card; and will hold for its own account, or for the account of the consumer, the pool of funds used to pay merchants when consumers present gift cards to pay for goods or services.4 Industry studies and medial reports suggest that the gift card market is growing rapidly, and will continue to do so over the next several years. This rapid growth – together with the diversity of fees and other terms and conditions among different gift card products – shows that it is important for national banks that offer these products to adopt sound disclosure practices to help ensure that consumers understand the gift card products they are purchasing and using. CONSUMER DISCLOSURES Because the purchaser and the recipient of a gift card typically are not the same person, gift cards present unique disclosure challenges. In particular, providing disclosures to a gift card purchaser may not be sufficient to avoid compliance and reputation risks related to misunderstanding by a recipient about material costs, terms, and conditions of the gift card. In these circumstances, the OCC expects national bank gift card issuers to take appropriate actions to ensure that critical information is provided in a form that is likely to be readily available to recipients, as well as purchasers, of gift cards. Accordingly, with respect to gift cards that are bank products, the OCC would expect to see the following disclosures: * Disclosures on Gift Cards. Basic information that is most essential to a gift card recipient’s decisions about when and how to use the cars should be provided on the gift card itself, or on a sticker or tape affixed to the gift card. In light of the terms and provisions of most bank gift cards, this information generally will include disclosures relating to the following matters: August 1, 2007 Agency # 210.00 * The expiration date of the card (which, consistent with existing practices for credit and debit cards, should be presented clearly on the front of the card); * The amount or the existence of any monthly maintenance, dormancy, usage, or similar fees; and * How consumers may obtain additional information about their cards or other customer service (for example, by providing a toll-free number or Web site address). * Disclosures Accompanying Gift Cards. Other information that is important to a gift care recipient’s decisions and actions should be provided in a form that is designed to be passed on with the card to the recipient, and issuers should encourage card purchasers to provide this information to gift card recipients. For example, the card could be carried in promotional packaging that contains this material information, or inserted into a sleeve that sets forth or is attached to these disclosures. Depending on the terms of the gift card product, this information may include: * The name of the bank that issued the card; * Any other fees that may apply to the card, including card replacement or reissuance fees, balance inquiry fees, foreign currency conversion fees, and cash redemption fees, and how they will be collected (for example, by debits to the card balance); * Whether and how consumers can receive a replacement card in the event that their card is lost or stolen, the information that consumers need to retain in order to do so, and responsibility for unauthorized transactions; * Where the card can be used, including, if applicable, suggestions for using the card as gas stations, hotels, restaurants, or other locations that may seek payment authorization in an amount greater than the consumer’s actual purchase; * The issuer’s obligation to authorize transactions through use of the card, and examples of the circumstances under which it may refuse to do so; * The importance of tracking the balance remaining on the card;5 * Whether, and if so, how the card may be used in “split payment” transactions (when the card is used in conjunction with another form of payment) and the process for redeeming de minimis remaining balances: * How consumers can resolve problems and complaints and receive balance and other information about their cards; and August 1, 2007 Agency # 210.00 * When applicable, the issuer’s ability to revoke or change the terms of the gift card agreement. PRACTICES TO AVOID National bank gift card issuers should take appropriate steps to avoid engaging in marketing or promotional practices that could mislead a reasonable consumer about the terms, conditions, or limitations of the bank gift card product they are offering. For example, issuers should not advertise a gift card as having “no expiration date” if monthly service or maintenance fees, dormancy fees, or similar charges can consume the card balance and thereby have the same practical effect as an expiration date. Similarly, if such fees may consume the card balance before the stated expiration date for the card arrives, disclosures relating to that expiration date (other than the disclosure on the front of the card) should explain that possibility. Issuers also should generally avoid describing gift card products in terms suggesting that they are similar to gift certificates or other payment instruments with which consumers may be more familiar, or as products that carry federal deposit insurance when such insurance does not apply. 47-101.3. – WILD CARD STATUTE (Reference A.C.A. § 23-47-101) Pursuant to the power granted to the Commissioner by A.C.A. §23-47-101(c), the Commissioner, by written order, may authorize state banks to engage in any banking activity then permitted to national banks. Such authority may be subject to such conditions and restrictions as the Commissioner may determine to be appropriate, whether or not any such conditions or restrictions are applicable to national banks. 47-101.4. - DISPOSITION OF INCOME FROM THE SALE OF CREDIT LIFE INSURANCE OR DEBT CANCELLATION CONTRACTS (Reference A.C.A. § 23-47-101) (a) Individual employees, officers, directors, and principal shareholders of a state bank shall not personally profit by retaining commissions or other income (including experience rating credits and other rebates, but not including any portion of a premium required to cover the underwriting risk) from the sale of credit life, health and accident, and mortgage life insurance ("credit life insurance") or debt cancellation contracts to the institution's loan customers. However, employees and officers may participate in a bonus or incentive plan based in whole or in part on sales of credit life insurance or debt cancellation contracts under which payments the state bank in any year may not exceed 5% of the recipient's annual salary. Alternatively, bonuses paid to any individual during the year for sales of credit life insurance or debt cancellation contract may not exceed 5% of the average salary of all loan officers participating in the plan. Payments may not be made to employees and officers more frequently than quarterly. (b) Income derived from the sales of credit life insurance or debt cancellation contracts to loan customers shall be credited to the income accounts of the state bank and not to the individual employees, officers, directors, or principal shareholders, their interests, or other affiliates. However, such income may be credited to an affiliate operating under the Bank August 1, 2007 Agency # 210.00 Holding Company Act or to a trust for the benefit of all shareholders, provided that the state bank receives reasonable compensation in recognition of the role played by its personnel, premises and goodwill in credit life insurance and debt cancellation sales. As a general rule, "reasonable compensation" means an amount equivalent to at least 20% of the affiliate's net income attributable to the state bank's credit life insurance or debt cancellation sales. (c) Where other legal considerations preclude a bank from using a particular procedure for selling credit life insurance or debt cancellation contracts or from disposing of the income in a particular manner, a state bank that wishes to provide this service to its loan customers shall seek and utilize an alternative method that complies with (a) and (b) above. (d) The distribution to shareholders of income derived from the sale of credit life insurance and debt cancellation contracts shall be accomplished through a declaration of dividends in conformity with law, rule, regulation and prudent financial practices. (e) Nothing in this section shall be construed to prohibit a bank employee, officer, director, or principal shareholder who holds an insurance agent's license from agreeing to compensate the bank for the use of its premises, employees, and goodwill; provided, that all income directly received by such employee, officer, director, or principal shareholder from this activity is remitted to the bank as compensation. RIGHT OF BANK TO EXECUTE GUARANTY 47-101.5. - GUARANTIES (Reference A.C.A. § 23-47-101) A state bank is not authorized to be an accommodation guarantor. An accommodation guaranty by a state bank is void and ultra vires. A state bank can execute a valid guaranty agreement if such action is necessary or advisable to protect an economic interest of the bank. In Bank of Morrilton v. Skipper, Tucker & Co., 165 Ark. 49, the bank executed an agreement guaranteeing the payment of certain liabilities by one of its customers. The purpose of the guaranty was to enable the customer (who was indebted to the bank) to collect funds under an improvement district contract that would enable the customer to pay the debt to the bank. The case was remanded for a new trial; but the Supreme Court recognized that a guaranty executed for the purpose stated would be binding on the bank. In Wasson v. American Can Co., 189 Ark. 354, the bank guaranteed the payment of certain drafts by one of its customers that owed it about $3,000. The guaranty by the bank was intended to enable the customer to purchase cans for tomato canning purposes and the intention of the bank was that this guaranty would enable the customer to continue business operations and pay part or all of the indebtedness to the bank, held that this guaranty was to protect an economic interest of the bank and was binding on the bank. The same principle of law was recognized in Citizens Bank of Booneville v. Clements, 172 Ark. 1023. See also Merchants & Planters Bank & Trust Company v. Deaton, 200 Ark. 828; also Nakdimen v. First National Bank, 177 Ark. 303. August 1, 2007 Agency # 210.00 47-101.6 - COMPUTER SERVICES BY BANK OR OPERATING SUBSIDIARY (Reference A.C.A. § 23-47-101) Any state bank, with the approval of the Commissioner, and so long as national banks are so authorized, may furnish computer, data processing, item processing, billing and posting services through its own organization or an operating subsidiary pursuant to A.C.A.§ 23-47-601 (and without the necessity of becoming a stockholder of a Bank Service Company) to other banks, and to nonbanking customers who are its depositors. MESSENGER SERVICE 47-101.8 - MESSENGER SERVICE (Reference A.C.A. § 23-47-101) (a) To meet the requirements of its customers, a state bank may provide messenger services within the geographic limits of its operations by means of an armored car or otherwise, under which messenger service: (1) funds may be picked up by the messenger and transmitted to the bank for deposit; and (2) funds may be transmitted by the bank to its customer by messenger. (b) The messenger service shall be pursuant to a written contract between the bank and the customer wherein it is agreed that in performing the functions under both (a)(1) and (a)(2) above, the messenger is the agent of the customer; that where funds (including currency, coin, checks or similar items) are transmitted to the bank by messenger for deposit, title to the funds shall remain with the customer until they are accepted by a teller of the bank at its banking house or any branch, and the depositor relationship shall not commence until such acceptance; that funds delivered by the bank to the messenger for transmission to a customer shall become the property of the customer when they are delivered to and accepted by the messenger, the customer's withdrawal to be deemed to have been affected as of that moment. (c) Hazard insurance covering holdup, robbery, theft, messenger fidelity or misappropriation shall be carried for the protection of the customer for all funds transmitted by messenger to or from the bank. The premiums on such insurance may be paid by the bank. 47-101.8. - POWER TO BORROW (Reference A.C.A. § 23-47-101) The Arkansas Banking Code impose no restriction upon a bank's borrowing power except the issuance of capital notes. Excessive borrowing by a bank can affect its capital adequacy and may subject the bank to administrative action by the Commissioner. Except in the case of capital notes, borrowing by a bank does not require prior approval by the Commissioner. August 1, 2007 Agency # 210.00 48-307.1 - CHARTER AMENDMENT APPLICATION FOR CHANGE OF BANK CORPORATE NAME (Reference A.C.A. § 23-48-307) Prior to filing an application with the State Bank Department for a charter amendment to change the corporate name of a state bank, the bank must complete the following procedures: A) Publish legal notice of intention to change the corporate name of the bank one (1) time in a newspaper of statewide circulation. Such notice shall include both the current corporate name of the bank and the proposed new name. A copy of the legal notice must accompany the application; and B) Request a current check of both state and federal trademark or servicemark filings on the proposed new name. This request may be implemented through the Arkansas State Library, Reference Department, One Capitol Mall, Little Rock, Arkansas 72201. The fax number for the Library is 501-682-1529. Requests must be submitted in writing and the check will be performed in the exact or almost exact name as requested. Evidence must accompany the application for charter amendment verifying the applicant has made a trademark or servicemark search and no trademark or servicemark exists for the proposed name. Once the charter amendment is received by the State Bank Department, notice of the filing of the application will be sent to all state-chartered banks by electronic transmission. Any protestants will have seven (7) days from the date the Department notice was sent to file an official protest to the application. An official protest must be provided to the Department in written form delineating the reasons for the protest and must be accompanied by a filing fee of two hundred dollars ($200). 48-309.1. - RESERVATION OF BANK CORPORATE NAME (Reference A.C.A § 23-48-309) The State Bank Department will accept a reservation for a bank corporate name only prior to and for the purpose of formation of a new state bank or prior to the consummation of an interstate merger transaction. The reservation will be for a nonrenewable two hundred seventy day period. A name not used permanently prior to the expiration of this period will be cancelled. Prior to filing a reservation of corporate name an applicant must: Request a current check of both state and federal trademark or servicemark filings on the proposed name. This request may be implemented through the Arkansas State Library, Reference Department, One Capitol Mall, Little Rock, Arkansas 72201. The fax number for the Library is 501-682-1529. Requests must be submitted in writing and the check will be performed in the exact or almost exact name as requested. Evidence must accompany the application for reservation of corporate name verifying the applicant has made a trademark or servicemark search and no trademark or servicemark exists for the proposed name. August 1, 2007 Agency # 210.00 48-315.1. - CAPITAL NOTES (Reference A.C.A. § 23-48-315) (a) A state bank, with the prior approval of the Commissioner, may issue subordinated capital notes. These notes may be authorized by the bank's directors; no stockholder's action being required. The notes must be sold at not less than par. The aggregate par value of the outstanding capital notes of a bank shall not exceed one-half (½) of the capital base of the issuing bank. Such notes shall be retired at such time and in such manner as may be fixed by the Board of Directors of the issuing bank, but not later than twenty (20) years after the date of issuance, subject to extension of the term as set forth in A.C.A. §23-48-315. (b) It is strongly suggested that the terms of the capital notes clearly state that the subordination to deposit liabilities shall be effective only while the bank is in a state of impaired capital, insolvency, liquidation, etc. Otherwise, the bank, though entirely solvent, might find it impossible (without violating the provisions of the notes) to pay the capital notes until it had retired all of the senior indebtedness. (c) A bank issuing capital notes must procure from the State Securities Commissioner an exemption certificate under A.C.A. § 2342503 (Supp. 1987). 48-315.2. - FEDERAL REGULATIONS (Reference A.C.A. § 23-48-315) Pursuant to both the Federal Reserve and FDIC Regulations, the capital notes must have an original average weighted maturity of five (5) years or more. The five (5) year term begins, not from the date written on the note, but from the date the note is actually issued and placed in circulation. September 1, 2005 Agency # 210.00 SECTION 3 DEPOSITS (RESERVED) September 1, 2005 Agency # 210.00 SECTION 4 INVESTMENTS 47-401.1 - INVESTMENT, CORPORATE DEBT OBLIGATIONS (Reference A.C.A. § 23-47-401) A bank may invest in debt securities, not in the purchase of stock, with certain exceptions. As to convertible debentures: a) If the securities are convertible into common stock at the option of the issuer, the bank may not purchase them. b) If convertible at the option of the holder, the bank may purchase them but must write down the cost to an amount which equals the investment value of the security determined without assigning any value to the conversion feature. PERMISSIBLE EXCEPTIONS. COMMON STOCK. TRUST PREFERRED SECURITIES. Common stock is not generally determined to be an investment security. The State Banking Board and Commissioner rule that in some instances the purchase by a bank of common stock may facilitate the exercise of a true banking function and be “incidental to the business of banking.” A bank could not purchase and hold common stock solely for the purpose of collecting dividends thereon; but if the acquisition of the common stock is merely incidental to the exercise of some valid banking power, it is permitted. Banks that are active in student loan operations may purchase and hold common stock of the Student Loan Marketing Association (“Sallie Mae”). Banks that participate in the secondary market for agricultural and rural housing real estate mortgages under the direction of the Federal Agricultural Mortgage Corporation (“Farmer Mac”) may purchase and hold stock in the Corporation (adopted by the State Banking Board April 19, 1988). Trust preferred securities are investments also called “trust preferred stock” which possess characteristics similar to debt obligations. Trust preferred securities are authorized investments for a state bank provided the preferred stock meets the investment quality and marketability requirements applicable to investment securities in accordance with the Federal Deposit Insurance Corporation, Financial Institution Letter, FIL-16-99, February 9, 1999, and any amendments thereof. Investments in trust preferred securities will be subject to the bank’s legal loan limitation. September 1, 2005 Agency # 210.00 47-401.2 - INVESTMENT - CONSUMER PAPER (Reference A.C.A. § 23-47-401) A bank may purchase consumer paper without recourse, warranty, or repurchase agreement. If, however, the bank purchases dealer paper under an arrangement whereby the dealer endorsed the paper or guaranteed its payment or repurchase, then under A.C.A. § 23-47-501, the loan limit (so far as the dealer in concerned), would be exceeded if the dealer’s liability as endorser plus his/her primary liability, if any, to the bank exceeds twenty percent (20%) of the capital base. 1. EFFECT OF RESERVE. When consumer paper is purchased by the bank under guaranty or repurchase agreement, if the contract provides for the creation of a reserve by withholding from disbursements or otherwise out of which the bank is entitled to remedy defaults, for loan limit purposes the amount of this reserve may be deducted from the total advances to the dealer. 2. EFFECT OF DEFAULT. If two consecutive installments under an item of pledged consumer paper which the dealer has transferred with recourse or under a guaranty should at any time be in default, the entire amount remaining as owed under the defaulted item will be charged against the dealer’s loan limit. 47-401.3 - REVENUE OBLIGATIONS – A.C.A § 23-47-401 Any single revenue bond issue of a governmental unit or political subdivision shall be subject to the twenty percent (20%) limitation of the capital base of the bank. A political subdivision will be defined to include an improvement district. NOTE: REVENUE OBLIGATIONS; NOT TO BE COMBINED. For municipal bond obligations payable solely from pledged revenues, the twenty percent (20%) limitation should be applied to each business corporation whose obligation (for rent or otherwise) if being assigned to secure the bonds, and to each bond or note issue payable solely out of revenues; but these revenue bonds should not be combined in determining whether the loan limit of the municipality has been exceeded. September 1, 2005 Agency # 210.00 47-401.4 - TRADING ACCOUNT (Reference A.C.A. § 23-47-401) Any state chartered bank, or bank holding company owning a state chartered bank, which establishes a "Trading Account" (a "Trading Account" is a segregated account in which assets are held for resale by a bank that regularly engages in trading activities), should be aware that such trading account activity is a high risk activity. Due to the inherent risk, any state chartered bank establishing such an account is required to maintain a written policy setting forth guidelines by which the purchase and sales may be conducted. Such policy must receive the approval of the bank's board of directors and notices of such approval, with a copy of the policy, forwarded to the Commissioner. NOTICE: ENGAGING IN TRADING ACCOUNT ACTIVITY IS A HIGH RISK ACTIVITY! Banks that engage in the purchase and sale of investments in anticipation of interest rate changes, price changes, and changes in the market or economic condition or for other speculative purposes are engaging in "Trading Account" type activities. Such transactions must be conducted through the appropriate establishment of a "Trading Account." Failure to conduct such "Trading Account" type activities in a duly authorized "Trading Account" will result in the state or federal bank examiners declaring a bank's entire investment account a "Trading Account" and will require all investments to be marked to the lower of market value or acquisition cost. In establishing a "Trading Account" bank directors are reminded of the high risk and speculative nature of this type of banking activity. STATE BANKING BOARD REQUIREMENTS. If, after considering the risk of loss, and the possibility of gain, a bank wishes to establish a "Trading Account," it must consider and adopt a policy addressing the following: A. The bank's board of directors shall adopt written objectives of the "Trading Account." B. The bank's board of directors shall designate the officer(s) authorized to negotiate such trading transactions. C. The bank's board of directors shall establish the maximum dollar amount of exposure acceptable to its bank. D. The bank's board of directors shall identify the type of trading instruments to be traded (treasury bills, government bonds, government agencies securities, tax exempt securities, commercial paper, certificates of deposit, banker's acceptances, put options, call options, other bonds, notes and debentures, gold and silver bullion). September 1, 2005 Agency # 210.00 E. The bank's board of directors shall require all transactions to be recorded at the time a contractual obligation to purchase or to sell in an appropriate record at the bank reflecting the bank's "obligation to purchase" or the bank's "obligation to sell". At the time a transaction is consummated, the transaction shall be fully documented requiring invoicing, settlement sheets, etc. F. The bank's board of directors shall establish, prior to trading activities, the dollar amount of profit or loss it is willing for the bank to incur. G. The bank's board of directors shall approve a list of security dealers who are eligible for the designated officer(s) of the bank to enter into trade transactions. In approving the list of the dealers, the bank's board of directors must obtain reasonable background information, current financial data, and such other information necessary to establish the character, integrity and financial stability of the dealers which the bank's board of directors proposed to transact business. H. The bank's board of directors shall require monthly written reports to be submitted by the officer(s) responsible for "Trading Account" activities for review by individual directors. I. The bank's board of directors shall review the activities in the "Trading Account", including the number of transactions, the bank's exposure, the profit or loss, and the "Trading Account" policy, regarding the adequacy of the policy and the bank's strict adherence to the policy, no less frequently than quarterly with such review being noted in the minutes of the board of directors' meetings. J. All transactions shall comply with, and meet all requirements of Arkansas' banking laws, rules and regulations, and applicable federal banking laws. All assets held in "Trading Accounts" are to be reported consistently at lower of the market value or acquisition cost. It is recommended this reporting be made to the bank's board of directors no less frequently than monthly. It is required that this reporting at the lower of market or acquisition cost be done no less frequently than quarterly and reported in accordance with the instructions for the preparation of the Reports of Condition and Income. Transfers to and from a "Trading Account", or any other account of the bank shall be recorded at market value at the time of the transfer and gains and losses recognized accordingly. All accounting of gains or losses resulting from "Trading Account" activities shall be consistent with reporting guidelines contained in the instructions for the Report of Condition and Income. September 1, 2005 Agency # 210.00 The bank's board of directors shall require written reports to the board which shall include, at a minimum, the following: 1. Total dollar amount held in the "Trading Account." 2. Inventory list by issue with purchase price and current market value. 3. The number of trades which were engaged in during the previous month and the total dollar volume traded. 4. The dollar amount and the number of trades engaged in with each securities dealer. 5. The monthly profit or loss and the yeartodate profit or loss from the "Trading Account" activities, including unrealized losses. 6. Any pending transaction(s) (purchase and/or sale). BANK SERVICE COMPANIES 47-603.1 - BANK SERVICE COMPANIES (Reference A.C.A. § 23-47-603) State banks may establish, create or invest in bank service companies which may be corporations or limited liability companies to perform the bank services defined in the statute, including computer and data processing services and such other services as the Commissioner may from time to time by order permit. The stock, in the case of a corporation, or the membership interest, in the case of a limited liability company, of a bank service company may also be owned by persons other than state banks. The operation of bank service companies shall be subject to regulation and examination by the Commissioner so long as any state bank utilizes the services thereof and owns any equity interest in such organization or has any loans outstanding to such organization. 47-603.2- LIMITATION ON INVESTMENT (Reference A.C.A. § 23-47-603) The aggregate of the loans to and investment in a bank service company cannot exceed twenty percent (20%) of the capital base of a state bank. September 1, 2005 Agency # 210.00 SECTION 5 LOAN LIMITS 47-501.1 - CERTIFICATES OF RELIANCE - ENDORSED OR GUARANTEED OBLIGATIONS (Reference A.C.A. § 23-47-501) The use of Certificates of Reliance was repealed by Act 427 of 2005. State Banks are no longer authorized to use Certificates of Reliance. 47-501.2 - COMBINING LOANS TO PARENT CORPORATION AND SUBSIDIARY, AND LOANS TO SEPARATE SUBSIDIARIES (Reference A.C.A. § 23-47-501) The Commissioner and State Banking Board rule that separate loans to a parent corporation and its subsidiary must be combined, for the assets of the parent may be represented wholly or in part by the stock of the subsidiary. If separate loans are made to two or more subsidiaries which operate separately and entirely independent of each other, then so far as the loan limit law is concerned, each could borrow up to the full loan limit; but if a subsidiary is dependent is its operations upon another subsidiary of the same parent for some vital service or commodity, the loans should be combined. If the parent corporation is not borrowing, obligations of subsidiary corporations are generally not combined except in the following situations: A. the bank is looking to a single source for repayment of the loan; B. one or more loans are for the accommodation of the parent corporation or other subsidiary; or C. the borrowing corporations are not separate concerns in reality but merely departments or divisions of a single enterprise. Obligations of a corporations must be combined with any other extension of credit the proceeds of which are used for the benefit of the corporation. September 1, 2005 Agency # 210.00 47-502.1 - DRAFTS OR BILLS OF EXCHANGE (Reference A.C.A. § 23-47-502) The Commissioner and the State Banking Board rule that this exception applies to negotiable drafts and to bills of exchange drawn by the seller of commodities upon the purchaser and bearing the acceptance of the latter, or drawn by the purchaser of commodities upon his bank and endorsed by the seller. In order to qualify under this exception, drafts or bills of exchange must be two name paper. Thus, unaccepted drafts are not eligible, nor are bills of exchange endorsed without recourse or not endorsed. 47-502.2 - OBLIGATIONS DRAWN AGAINST EXISTING VALUES (Reference A.C.A. § 23-47-502) The Commissioner and the State Banking Board rule that this exception applies to obligations secured by pledge of bill of lading covering goods or commodities in process of shipment. It is immaterial whether the obligation is negotiable and whether it is one-name or two-name paper; but the exception applies only to paper in connection with a sale transaction. 47-502.3 - OBLIGATIONS SECURED BY CERTAIN TRANSFERABLE DOCUMENTS OF TITLE (Reference A.C.A. § 23-47-502) The Commissioner and the State Banking Board rule that one hundred fifteen percent (115%) collateral margin applies both to livestock and readily marketable and nonperishable commodities, etc., covered by transferable documents. “Transferable documents” will be construed to include merely title documents, such as bills of lading or warehouse receipts, and not to include a lien instrument such as a chattel mortgage. If one hundred fifteen percent (115%) collateral margin should be impaired by depreciation, the failure to restore the margin may result in a loan limit violation. Even though the bank has previously loaned a borrower up to the statutory loan limit of twenty percent (20%), it may, without committing a loan limit violation, lend the same borrower additional funds against collateral properly margined as provided in the last preceding paragraph. 47-502.4 - OBLIGATIONS GUARANTEED BY FARM SERVICE AGENCY (Reference A.C.A. § 23-47-502) Obligations, which the Farm Service Agency or United States Department of Agriculture (formerly Farmers Home Administration), guarantees against any loss sustained by the bank are, to the extent of such guarantee, free from loan limitations. September 1, 2005 Agency # 210.00 47-502.5 - LOANS SECURED BY CERTIFICATE OF DEPOSIT (Reference A.C.A. § 23-47-502) The portion of a loan properly secured by a commercial bank certificate of deposit, whether it is an “own” bank certificate of deposit or a certificate of deposit issued by another commercial bank will not be subject to that bank’s legal loan limit. 47-502.6 - LOAN COMMITMENTS AND STANDBY LETTERS OF CREDIT (Reference A.C.A. § 23-47-502) Loan commitments and standby letters of credit will be subject to a banks legal loan limit in the entire amount on the date the loan commitment or letter of credit is issued in written form whether or not any, a portion of, or all of the loan has been funded. September 1, 2005 Agency # 210.00 SECTION 6 SUBSIDIARIES (RESERVED) April 2, 2007 Agency # 210.00 SECTION 7 TRUST POWERS 47-701.1 - ACTIVITIES NOT REQUIRING TRUST POWERS (Reference A.C.A. § 23-47-701) A bank acting as escrow holder under an ordinary escrow contract, where the bank has no power to invest the escrowed funds, does not require trust powers. A state bank without trust powers may act as paying agent under a bond or note issue but it may not act as trustee thereunder. 47-701.2 - FEDERAL DEPOSIT INSURANCE CORPORATION AND FEDERAL RESERVE APPROVAL (Reference A.C.A. § 23-47-701) A nonmember insured bank may not adopt trust powers without Federal Deposit Insurance Corporation approval. A state member bank must obtain Federal Reserve approval. 47-701.3 - TITLE TO TRUST SECURITIES IN NAME OF A NOMINEE (Reference A.C.A. § 23-47-701) A bank or trust company in the administration of a trust may place title to trust securities in the name of a nominee. If there is a cotrustee, consent must be obtained. But a bank or trust company in such a situation, will be absolutely responsible for any loss occasioned by the act of the nominee. 47-701.4 - COMMON TRUST FUND (Reference A.C.A. § 23-47-701) (a) This concept permits the consolidation of the assets of the various trusts being administered by the bank into a common fund for investment purposes and to allocate to each trust a specific interest in this fund based on the amount of its contribution. An insured state chartered nonmember bank or trust establishing a common trust fund should consult the Federal Deposit Insurance Corporation regarding its rules and regulations on such common trust funds. (b) The Internal Revenue Code and the regulations and rulings promulgated thereunder contain certain provisions which exempt common trust funds from income taxation and instead impose the tax on each trust, whether or not the income is distributed. If there is a cofiduciary, the bank establishing the common trust fund must secure the permission of the cofiduciary prior to the investment of trust assets into the fund. If the bank merely acts as an investment agent in respect to the investments of one of its customers, such funds may not be April 2, 2007 Agency # 210.00 placed in the common trust fund. Any state bank establishing a common trust fund shall obtain approval of the Commissioner in advance of implementation. Such approval shall not be unreasonably withheld. 47-701.5 - INDIVIDUAL RETIREMENT ACCOUNT (Reference A.C.A. § 23-47-701) Section 26 U.S.C. 408 et seq. establishes Individual Retirement Accounts. A bank that has trust powers may accept deposits into Individual Retirement Accounts and may, depending on the arrangement between the depositor and the bank, exercise discretion in the investment of such account. If a bank does not have trust powers, it may accept such deposits on a "custodial" arrangement only. However, reference should be made to the above cited federal law and the regulations and rulings promulgated thereunder for the administration of such accounts. 47-701.6 - KEOGH PLAN (Reference A.C.A. § 23-47-701) A bank's activities as trustee or custodian under a Keogh Plan is governed by Section 26. U.S.C. 404(e). 47-705.1 - TRUST DEPOSITS AWAITING INVESTMENT OR DISTRIBUTION (Reference A.C.A. § 23-47-705) All Trust Deposits awaiting investment or distribution which are determined to be eligible under A.C.A. § 2869206 for pledging of government securities to the deposit, may be secured by a blanket pledging of eligible securities to those eligible trust deposits subject to the following requirements: (a) The total of the pledged securities must always exceed the total of the eligible trust deposits by ten percent (10%). Such trust deposits shall have a prior and preferred claim on said pledged securities. (b) Any bank using blanket securities as collateral for eligible trust deposits must identify the securities being used and perfect a security interest in such securities for the benefit of the owners of the accounts for which the pledge is made. (c) Trust deposits that are being collateralized must be designated in the trust department's records. The actual amount of collateralization need not be given. These records should be maintained current at all times within the bank's trust department. (d) Funds held by a state bank as trustee which are awaiting investment or distribution shall not be held uninvested or undistributed any longer than is reasonable for the proper management of the account. Each state bank exercising fiduciary powers shall adopt and follow written policies and procedures intended to ensure that the maximum rate of return available for trustquality, shortterm investments is obtained upon funds so held, consistent April 2, 2007 Agency # 210.00 with the requirements of the governing instrument and local law. Such policies and procedures shall take into consideration all relevant factors, including but not limited to the anticipated return that could be obtained while the cash remains uninvested or undistributed, the cost of investing such funds, and the anticipated need for the funds. (e) Funds held in trust by a state bank as trustee awaiting investment or distribution may, unless prohibited by the instrument creating the trust or by local law, be deposited in the commercial or savings or other department of the bank, provided that it shall first set aside under control of the trust department as collateral security (i) direct obligations of the United States, (ii) other obligations fully guaranteed by the United States as to principal and interest, or (iii) general obligations of the State of Arkansas. (f) The securities so deposited or securities substituted therefore as collateral shall at all times exceed the total of the eligible trust deposits by ten percent (10%), but such security shall not be required to the extent that the funds so deposited are insured by the Federal Deposit Insurance Corporation. The requirements of this section are met when qualifying assets of the bank are pledged to secure a deposit in compliance with local law, and no duplicate pledge shall be required in such case. 47-701.7 - BANK AS TRUSTEE; VOTING OF OWN SHARES (Reference A.C.A. § 23-47-701) The trust department of a state bank is theoretically subject to the dominion of the board of directors; and the trust department conceivably might in some situations be called upon to vote the bank's own shares for proposals more calculated to benefit the individual directors than the bank. Under the National Banking Act (Section 12 U.S.C. 61) a national bank cannot vote its own shares in the election of directors of the bank unless under the terms of the trust the manner in which the shares shall be voted may be determined by a donor or beneficiary of the trust and unless such donor or beneficiary actually directs how such shares shall be voted. Moreover, if the national bank has a cotrustee, the shares may be voted by the cotrustee. The above stated national bank rule shall be applicable with respect to voting any shares of the bank held by the trust department in the election of the bank's directors. On all other proposals, the trust department is urged to weigh carefully the issues presented and any conflicts of interest which are present before deciding whether to vote or how to vote the shares. 47-701.8 - TRUST POLICIES (Reference A.C.A. § 23-47-701) All state banks exercising trust powers shall adopt a trust policy setting forth, at a minimum, trust department investment practices, including investments in the obligations of the bank and its affiliates, voting practices and procedures concerning the banks stock and the stock of any affiliates of the bank, and trust account administration policies and procedures. April 2, 2007 Agency # 210.00 FIDUCIARY POWERS OF STATE BANKS 47-701.9 - FIDUCIARY POWERS OF STATE BANKS (Reference A.C.A. § 23-47-701) (a) Definitions. For the purposes of this regulation, the term: "Account" means the trust, estate or other fiduciary relationship which has been established with a bank; "Custodian under a Uniform Gifts to Minors Act" means an account established pursuant to a state law which is substantially similar to the Uniform Gifts to Minors Act as published by the America Law Institute and with respect to which the bank operating such account has established to the satisfaction of the Secretary of the Treasury that it has duties and responsibilities similar to duties and responsibilities of a trustee or guardian. "Fiduciary" means a bank undertaking to act alone or jointly with others primarily for the benefit of another in all matters connected with its undertaking and includes trustee, executor, administrator, registrar of stocks and bonds, guardian of estates, assignee, receiver, committee of estates of incompetents, managing agent and any other similar capacity; "Fiduciary powers" means the power to act in any fiduciary capacity as authorized by Arkansas state law or any applicable federal law; "Fiduciary records" means all matters which are written, transcribed, recorded, received or otherwise come into possession of a bank and are necessary to preserve information concerning the acts and events relevant to the fiduciary activities of a bank; "Guardian" means the guardian or committee by whatever name employed by local law, of the estate of an infant, an incompetent individual, an absent individual, or a competent individual over whose estate a court has taken jurisdiction, other than under bankruptcy or insolvency laws; "Investment authority" means the responsibility conferred by action of law or a provision of an appropriate governing instrument to make, select or change investments, review investment decisions made by others, or to provide investment advice or counsel to others; "Local law" means the law of the state or other jurisdiction governing the fiduciary relationship; "Managing agent" means the fiduciary relationship assumed by a bank upon the creation of an account which names the bank as agent and confers investment discretion upon the bank; "State bank" means any bank, trust company, savings bank, or other banking institution, which is not a national bank and the principal office of which is located in the District of Columbia, any state, commonwealth, or territorial possession of the United States; April 2, 2007 Agency # 210.00 "Trust department" means that group or groups of officers and employees of a bank organized under the supervision of officers or employees to whom are designated by the board of directors the performance of the fiduciary responsibilities of the bank, whether or not the group or groups are so named; (b) Adoption of Policies and Procedures with Respect to Brokerage Placement Practices. Each state bank exercising investment discretion (as defined in Section 12 C.F.R. 12.2(c)) with respect to an account shall adopt and follow written policies and procedures intended to ensure that its brokerage placement practices comply with all applicable laws and regulations. Among other relevant matters, such written policies and procedures should address, where appropriate, (1) the selection of persons to effect securities transactions and the evaluation of the reasonableness of any brokerage commissions paid to such persons (including the factors considered in these determinations); (2) any acquisition of services or products, including research services, in return for brokerage commissions; (3) the allocation of research or other services among accounts, including those which did not generate commissions to pay for such research or other services; and (4) the need, in appropriate instances, to make disclosures concerning such policies and procedures to prospective and existing customers. (c) Administration of Fiduciary Powers. (1) (A) The board of directors is responsible for the proper exercise of fiduciary powers by the bank. All matters pertinent thereto, including the determination of policies, the investment and disposition of property held in a fiduciary capacity, and the direction and review of the actions of all officers, employees, and committees utilized by the bank in the exercise of its fiduciary powers, are the responsibility of the board. In discharging this responsibility, the board of directors may assign, by action duly entered in the minutes, the administration of such of the bank's fiduciary powers as it may consider proper to assign to such directors, officers, employees or committees as it may designate. (B) No fiduciary account shall be accepted without the prior approval of the board, or of the directors, officers, or committees to whom the board may have designated the performance of that responsibility. A written record shall be made of such acceptances and of the relinquishment or closing out of all fiduciary accounts. Upon the acceptance of an account for which the bank has investment responsibilities, a prompt review of the assets shall be made. The board shall also ensure that at least once during every calendar year thereafter, all the assets held in or for each fiduciary account, where the bank has investment responsibilities are reviewed to determine the advisability of retaining or disposing of such assets. A written record shall be made of the approval of all purchases, sales and changes of trust assets. April 2, 2007 Agency # 210.00 (C) The board of directors shall name a Trust Committee consisting of at least three (3) directors, at least one of whom shall not be an officer of the bank, to be responsible for and supervise the activities of the trust department. The Trust Committee shall meet at least quarterly or more frequently if necessary and prudent to adequately supervise the activities of the department. The Trust Committee shall keep full minutes of its actions and make periodic reports thereof to the board. (2) All officers and employees taking part in the operation of the trust department shall be adequately bonded. (3) Every state bank exercising fiduciary powers shall designate, employ or retain legal counsel who shall be readily available to pass upon fiduciary matters and to advise the bank and its trust department. (4) The trust department may utilize personnel and facilities of other departments of the bank, and other departments of the bank may utilize personnel and facilities of the trust department only to the extent not prohibited by law. Every state bank exercising fiduciary powers shall adopt written policies and procedures to ensure that the Federal and State securities laws are complied with in connection with any decision or recommendation to purchase or sell any security. Such policies and procedures, in particular, shall ensure that state bank trust departments shall not use material inside information in connection with any decision or recommendation to purchase or sell any security. (5) The Trust Committee shall review the examination reports of the trust department by supervisory agencies and record its action thereon in its minutes. Nothing herein is intended to prohibit the board of directors from acting as the Trust Committee, from designating additional officers to administer the operations of the trust department and defining their duties, or from appointing additional committees for the trust department operation and defining the duties of such committee. (d) Books and Accounts. (1) Every state bank exercising fiduciary powers shall keep its fiduciary records separate and distinct from other records of the bank. All fiduciary records shall be so kept and retained for such time as to enable the bank to furnish such information or reports with respect thereto as may be required by the State Bank Department. The fiduciary records shall contain full information relative to each account. (2) Every such state bank shall keep an adequate record of all pending litigation to which it is a party in connection with its exercise of fiduciary powers. (3) Solely for purposes of examination by the State Bank Department, a state bank shall retain the records required by this section for a period of three (3) years from the later of termination of the fiduciary account relationship to which the records relate or of litigation relating to such account, unless applicable law specifically prescribes a different period. April 2, 2007 Agency # 210.00 (e) Audit of Trust Department. A committee of directors, exclusive of any active officers of the bank, shall at least once during each calendar year make suitable audits of the trust department or cause suitable audits to be made by auditors responsible only to the board of directors and at such time shall ascertain whether the department has been administered in accordance with law, applicable regulations and sound fiduciary principles. The board of directors may elect, in lieu of such periodic audits, to adopt an adequate continuous audit system. A report of the audits and examination required under this section, together with the action taken thereon, shall be noted in the minutes of the board of directors. (f) Investment of Funds Held as Fiduciary. (1) Funds held by a state bank in a fiduciary capacity shall be invested in accordance with the instrument establishing the fiduciary relationship and local law. When such instrument does not specify the character or class of investments to be made and does not vest in the bank, its directors or its officers a discretion in the matter, funds held pursuant to such instrument shall be invested in any investment in which corporate fiduciaries may invest under local law. (2) If, under local law, corporate fiduciaries appointed by a court are permitted to exercise a discretion in investments, or if a state bank acting as fiduciary under appointment by a court is vested with a discretion in investments by an order of such court, funds of such accounts may be invested in investments which are permitted by local law. Otherwise, a state bank acting as fiduciary under appointment by a court must make all investments of funds in such accounts under an order of that court. Such orders in either case shall be preserved with the fiduciary records of the bank. (3) The collective investment of funds received or held by a state bank as fiduciary is governed by subsection (n) of this regulation. (4) As a part of each examination of the trust department of a state bank the State Bank Department will examine the investments held by such bank as fiduciary, including the investment of funds under the provisions of subsection (n) of this section, in order to determine whether such investments are in accordance with law, this regulation and sound fiduciary principles. (g) Selfdealing. (1) Unless lawfully authorized by the instrument creating the relationship or by court order or by local law, funds held by a state bank as fiduciary shall not be invested in stock or obligations of, or property acquired from, the bank or its directors, officers, or employees, or individuals with whom there exists such a connection, or organizations in which there exists such an interest, as might affect the exercise of the best judgment of the bank in acquiring the property, or in stock or obligations of, or property acquired from, affiliates of the bank or their directors, officers or employees. April 2, 2007 Agency # 210.00 (2) Property held by a state bank as fiduciary shall not be sold or transferred, by loan or otherwise, to the bank or its directors, officers, or employees, or to individuals with whom there exists such a connection, or organizations in which there exists such an interest, as might affect the exercise of the best judgment of the bank in selling or transferring such property, or to affiliates of the bank or their directors, officers or employees, except: (A) Where lawfully authorized by the instrument creating the relationship or by court order or by local law; (B) In cases in which the bank has been advised by its counsel in writing that it has incurred as fiduciary a contingent or potential liability and desires to relieve itself from such liability, in which case such a sale or transfer may be made with the approval of the board of directors, provided that in all such cases the bank, upon the consummation of the sale or transfer, shall make reimbursement in cash at no loss to the account; (C) As is provided in subsection (b)(8)(B) of this regulation; (D) Where required by the State Bank Department. (3) Except as provided in (f) (2) of this regulation, funds held by a state bank as fiduciary shall not be invested by the purchase of stock or obligations of the bank or its affiliates unless authorized by the instrument creating the relationship or by court order or by local law, provided that if the retention of stock or obligations of the bank or its affiliates is authorized by the instrument creating the relationship or by court order or by local law, it may exercise rights to purchase its own stock or securities convertible into its own stock when offered pro rata to stockholders, unless such exercise is forbidden by local law. When the exercise of rights or receipt of a stock dividend results in fractional share holdings, additional fractional shares may be purchased to complement the fractional shares so acquired. (4) A state bank may sell assets held by it as fiduciary in one account to itself as fiduciary in another account if the transaction is fair to both accounts and if such transaction is not prohibited by the terms of any governing instrument or by local law. (5) A state bank may make a loan to an account from the funds belonging to another such account, when the making of such loans to a designated account is authorized by the instrument creating the account from which such loans are made, and is not prohibited by local law. (6) A state bank may make a loan to an account and may take as security therefore assets of the account, provided such transaction is fair to such account and is not prohibited by local law. (h) Custody of Investments. (1) The investments of each account shall be kept separate from the assets of the bank, and shall be placed in the joint custody or control of not less than two of the officers or employees of the bank designated for that purpose by the board of directors of the bank or by one April 2, 2007 Agency # 210.00 or more officers designated by the board of directors of the bank; and all such officers and employees shall be adequately bonded. To the extent permitted by law, a state bank may permit the investments of a fiduciary account to be deposited elsewhere. (2) The investments of each account shall be either: (A) Kept separate from those of all other accounts, except as provided in subsection (n) of this regulation, or (B) Adequately identified as the property of the relevant account. (i) Deposit of Securities with State Authorities. Whenever the local law requires corporations acting as fiduciary to deposit securities with the state authorities for the protection of private or court trusts, every state bank in that state authorized to exercise fiduciary powers shall, before undertaking to act in any fiduciary capacity, make a similar deposit with the state authorities. If the state authorities refuse to accept such a deposit, the securities shall be deposited with the Federal Reserve Bank of the district in which such state bank is located, and such securities shall be held for the protection of private or court trusts with like effect as though the securities had been deposited with the state authorities. (j) Compensation of Bank. (1) If the amount of the compensation for acting in a fiduciary capacity is not regulated by local law or provided for in the instrument creating the fiduciary relationship or otherwise agreed to by the parties, a state bank acting in such capacity may charge or deduct a reasonable compensation for its services. When the bank is acting in a fiduciary capacity under appointment by a court, it shall receive such compensation as may be allowed or approved by that court or by local law. (2) No state bank shall, except with the specific approval of its board of directors, permit any of its officers or employees, while serving as such, to retain any compensation for acting as a cofiduciary with the bank in the administration of any account undertaken by it. (k) Receivership or Voluntary Liquidation of Bank. (1) Whenever a receiver is appointed for a state bank by the Commissioner, such receiver shall, pursuant to the instructions of the Commissioner and to the orders of the court having jurisdiction, proceed to close such accounts as can be closed promptly and transfer all other accounts to substitute fiduciaries. (2) Whenever a state bank exercising fiduciary powers is placed in voluntary liquidation, the liquidating agent shall, in accordance with the local law, proceed at once to liquidate the affairs of the trust department as follows: April 2, 2007 Agency # 210.00 (A) All trust and estates over which a court is exercising jurisdiction shall be closed or disposed of as soon as practical in accordance with the orders or instructions of such court; (B) All other accounts which can be closed promptly shall be closed as soon as practicable and final accounting made therefore, and all remaining accounts shall be transferred by appropriate legal proceedings to substitute fiduciaries. (l) Surrender or Revocation of Fiduciary Powers. Any state bank which has been granted the right to exercise fiduciary powers and which desires to surrender such right shall file with the Commissioner a certified copy of the resolution of its board of directors signifying such desire. Upon receipt of such resolution, the Commissioner shall make an investigation and if satisfied that the bank has been discharged from all fiduciary duties which it has undertaken, shall issue a certificate to such bank certifying that it is no longer authorized to exercise fiduciary powers. COLLECTIVE INVESTMENT FUNDS Collective Investment. (Common Trust Funds as in A.C.A. § 2869202) (a) Where not in contravention of local law, funds held by a state bank as fiduciary may be invested collectively: (1) In a common trust fund maintained by the bank exclusively for the collective investment and reinvestment of moneys contributed thereto by the bank in its capacity as trustee, executor, administrator, guardian, or custodian under a Uniform Gifts to Minors Act. (2) In a fund consisting solely of assets of retirement, pension, profit sharing, stock bonus or other trusts which are exempt from federal income taxation under the Internal Revenue Code. (b) Collective investment of funds or other property by state banks under paragraph a of this section (referred to in this paragraph as "collective investment funds") shall be administered as follows: (1) Each collective investment fund shall be established and maintained in accordance with a written plan (referred to herein as the Plan) which shall be approved by a resolution of the bank's board of directors and filed with the Comptroller of the Currency. The Plan shall contain appropriate provisions not inconsistent with the rules and regulations of the Comptroller of the Currency and the State Bank Department as to the manner in which the fund is to be operated, including provisions relating to the investment powers and a general statement of the investment policy of the bank with respect to the fund; the allocation of income, profits and losses; the terms and conditions governing the admission or withdrawal of participations in the fund; the auditing of accounts of the bank with respect to the fund; the basis and method of valuing assets in the fund, setting forth criteria for each type of asset; the minimum frequency for valuation of assets of the fund; the period following each such valuation date during which the April 2, 2007 Agency # 210.00 valuation may be made (which period in usual circumstances should not exceed 10 business days); the basis upon which the fund may be terminated; and such other matters as may be necessary to define clearly the rights of participants in the fund. Except as otherwise provided in paragraph (b)(15) of this section of this regulation, fund assets shall be valued at market value unless such value is not readily ascertainable, in which case a fair value determined in good faith by the fund trustees may be used. A copy of the Plan shall be available at the principal office of the bank for inspection during all banking hours and upon request a copy of the Plan shall be furnished to any person. (2) Property held by a bank in its capacity as trustee of retirement, pension, profit sharing, stock bonus, or other trusts which are exempt from federal income taxation under any provisions of the Internal Revenue Code may be invested in collective investment funds established under the provisions of subparagraph (1) or (2) of paragraph (a) of this section of this regulation, subject to the provisions herein contained pertaining to such funds, and may qualify for tax exemption pursuant to section 584 of the Internal Revenue Code. Assets of retirement, pension, profit sharing, stock bonus, or other trusts which are exempt from federal income taxation by reason of being described in Section 401 of the Internal Revenue Code may be invested in collective investment funds established under the provisions of subparagraph (2) of paragraph (a) of section this of this regulation if the fund qualifies for tax exemption under Revenue Ruling 81100, and following rules. (3) All participations in the collective investment fund shall be on the basis of a proportionate interest in all of the assets. In order to determine whether the investment of funds received or held by a bank as fiduciary in a participation in a collective investment fund is proper, the bank may consider the collective investment fund as a whole and shall not, for example, be prohibited from making such investment because any particular asset is nonincome producing. (4) Not less frequently than once during each period of three (3) months, a bank administering a collective investment fund shall determine the value of the assets in the fund as of the date set for the valuation of assets. No participation shall be admitted to or withdrawn from the fund except (i) on the basis of such valuation and (ii) as of such valuation date. No participation shall be admitted to or withdrawn from the fund unless a written request for or notice of intention of taking such action shall have been entered on or before the valuation date in the fiduciary records of the bank and approved in such manner as the board of directors shall prescribe. No requests or notices may be canceled or countermanded after this valuation date. If a fund described in paragraph (a)(2) of this section of this regulation is to be invested in real estate or other assets which are not readily marketable, the bank may require a prior notice period not to exceed one (1) year, for withdrawals. (5) (A) A bank administering a collective investment fund shall at least once during each period of twelve (12) months cause an adequate audit to be made of the collective investment fund by auditors responsible only to the board of directors of the bank. In the event such audit is performed by independent public accountants, the reasonable expenses of such audit may be charged to the collective investment fund. April 2, 2007 Agency # 210.00 (B) A bank administering a collective investment fund shall at least once during a period of twelve (12) months prepare a financial report of the fund. This report, based upon the above audit, shall contain a list of investments in the fund showing the cost and current market value of each investment; a statement for the period since the previous report showing purchases, with cost; sales, with profit or loss and any other investment changes; income and disbursements; and an appropriate notation as to any investments in default. (C) The financial report may include a description of the fund's value on previous dates, as well as its income and disbursements during previous accounting periods. No predictions or representations as to future results may be made. In addition, as to funds described in subparagraph (1) of paragraph (a) of this section of this regulation, neither the report nor any other publication of the bank shall make reference to the performance of funds other than those administered by the bank. (D) A copy of the financial report shall be furnished, or notice shall be given that a copy of such report is available and will be furnished without charge upon request, to each person to whom a regular periodic accounting would ordinarily be rendered with respect to each participating account. A copy of such financial report may be furnished to prospective customers. The cost of printing and distribution of these reports shall be borne by the bank. In addition, a copy of the report shall be furnished upon request to any person for a reasonable charge. The fact of the availability of the report for any fund described in subparagraph (1) of paragraph (a) of this section of this regulation may be given publicity solely in connection with the promotion of the fiduciary services of the bank. (E) Except as herein provided, the bank shall not advertise or publicize its collective investment fund(s) described in subparagraph (1) of paragraph (a) of this section of this regulation. (6) When participations are withdrawn from a collective investment fund, distributions may be made in cash or ratably in kind, or partly in cash and partly in kind, provided that all distributions as of any one valuation date shall be made on the same basis. (7) If for any reason an investment is withdrawn in kind from a collective investment fund for the benefit of all participants in the fund at the time of such withdrawal and such investment is not distributed ratably in kind, it shall be segregated and administered or realized upon for the benefit ratably of all participants in the collective investment fund at the time of withdrawal. (8) (A) No bank shall have any interest in a collective investment fund other than in its fiduciary capacity. Except for temporary net cash overdrafts or as otherwise specifically provided herein, it may not lend money to a fund, sell property to, or purchase property from a fund. No assets of a collective investment fund may be invested in stock or obligations, including time or savings deposits, of the bank or any of its affiliates, provided that such deposits may be made of funds awaiting investment or distribution. Subject to all other provisions of this section, funds held by a bank as fiduciary for its own employees may be April 2, 2007 Agency # 210.00 invested in a collective investment fund. A bank may not make any loan on the security of a participation in a fund. If because of a creditor relationship or otherwise the bank acquires an interest in a participation in a fund, the participation shall be withdrawn on the first date on which such withdrawal can be effected. However, in no case shall an unsecured advance until the time of the next valuation date to an account holding a participation be deemed to constitute the acquisition of an interest by the bank. (B) Any bank administering a collective investment fund may purchase for its own account from such fund any defaulted fixed income investment held by such fund, if in the judgment of the board of directors the cost of segregation of such investment would be greater than the difference between its market value and its principal amount plus interest and penalty charges due. If the bank elects to so purchase such investment, it must do so at its market value or at the sum of cost, accrued unpaid interest, and penalty charges, whichever is greater. (9) Except in the case of collective investment funds described in paragraph (a)(2) of this section of this regulation: (A) No funds or other property shall be invested in a participation in a collective investment fund if as a result of such investment the participant would have an interest aggregating in excess of ten percent (10%) of the then market value of the fund, provided that in applying this limitation if two or more accounts are created by same person or persons and as much as onehalf (½) of the income or principal of each account is payable or applicable to the use of the same person or persons, such accounts shall be considered as one; (B) No investment for a collective investment fund shall be made in stocks, bonds or other obligations of any one person, firm or corporation if as a result of such investment the total amount invested in stocks, bonds, or other obligations issued or guaranteed by such person, firm or corporation would aggregate in excess of ten percent (10%) of the then market value of the fund, provided that this limitation shall not apply to investments in direct obligations of the United States or other obligations fully guaranteed by the United States as to principal and interest; (C) A bank administering a collective investment fund shall maintain, in cash and readily marketable investments, such percentage of the assets of the fund as is necessary to provide adequately for the liquidity needs of the fund and to prevent inequities among fund participants. (10) The reasonable expenses incurred in servicing mortgages held by a collective investment fund may be charged against the income account of the fund and paid to servicing agents, including the bank administering the fund. April 2, 2007 Agency # 210.00 (11) (A) A bank may (but shall not be required to) transfer up to five percent (5%) of the net income derived by a collective investment fund from mortgages held by such fund during any regular accounting period to a reserve account, provided that no such transfers shall be made which would cause the amount in such account to exceed one percent (1%) of the outstanding principal amount of all mortgages held in the fund. The amount of such reserve account, if established, shall be deducted from the assets of the fund in determining the fair market value of the fund for the purposes of admissions and withdrawals. (B) At the end of each accounting period, all interest payments which are due but unpaid with respect to mortgages in the fund shall be charged against such reserve account to the extent available and credited to income distributed to participants. In the event of subsequent recovery of such interest payments by the fund, the reserve account shall be credited with the amount so recovered. (12) A state bank administering a collective investment fund shall have the exclusive management thereof. The bank may charge a fee for the management of the collective investment fund provided that the fractional part of such fee proportionate to the interest of each participant shall not, when added to any other compensations charged by a bank to a participant, exceed the total amount of compensations which would have been charged to said participant if no assets of said participant had been invested in participations in the fund. The bank shall absorb the costs of establishing or reorganizing a collective investment fund. (13) No bank administering a collective investment fund shall issue any certificate or other document evidencing a direct or indirect interest in such fund in any form. (14) No mistake made in good faith and in the exercise of due care in connection with the administration of a collective investment fund shall be deemed to be a violation of this part if promptly after the discovery of the mistake the bank takes whatever action may be practicable in the circumstances to remedy the mistake. (15) Shortterm investment funds established under paragraph (a) of this section of this regulation may be operated on a cost, rather than market value, basis for purposes of admissions and withdrawals, if the plan of operation satisfies the following conditions: (A) investments must be limited to bonds, notes or other evidences of indebtedness which are payable on demand (including variable amount notes) or which have a maturity date not exceeding ninety-one (91) days from the date of purchase. However, twenty percent (20%) of the value of the fund may be invested in longer term obligations; (B) the difference between the cost and anticipated principal receipt on maturity must be accrued on a straightline basis; (C) assets of the fund must be held until maturity under usual circumstances; and April 2, 2007 Agency # 210.00 (D) after effecting admissions and withdrawals, not less than twenty percent (20%) of the value of the remaining assets of the fund must be composed of cash, demand obligations and assets that will mature on the fund's next business day. (c) In addition to the investments permitted under paragraph 1 of this regulation, funds or other property received or held by a state bank as fiduciary may be invested collectively, to the extent not prohibited by local law, as follows: (1) In shares of a mutual trust investment company, organized and operated pursuant to a statute that specifically authorizes the organization of such companies exclusively for the investment of funds held by corporate fiduciaries, commonly referred to as a "bank fiduciary fund." (2) (A) In a single real estate loan, a direct obligation of the United States, or an obligation fully guaranteed by the United States, or in a single fixed amount security, obligation or other property, either real, personal or mixed, of a single issuer; or (B) On a short term basis in a variable amount note of a borrower of prime credit, provided that such note shall be maintained by the bank on its premises and may be utilized by it only for investment of moneys held in its trust department accounts, provided further, that the bank owns no participation in the loans or obligations authorized under (A) or (B) hereof, and has no interest in any investment therein except in its capacity as fiduciary. (3) In a common trust fund maintained by the bank for the collective investment of cash balances received or held by a bank in its capacity as trustee, executor, administrator, or guardian, which the bank considers to be individually too small to be invested separately to advantage. The total investment for such fund must not exceed one hundred thousand dollars ($100,000); the number of participating accounts is limited to one hundred (100), and no participating account may have an interest in the fund in excess of ten thousand dollars ($10,000), provided that in applying these limitations if two or more accounts are created by the same person or persons and as much as onehalf (½) of the income or principal of each account is presently payable or applicable to the use of the same person or persons such account shall be considered as one, and provided that no fund shall be established or operated under this subparagraph for the purpose of avoiding the provisions of paragraph (b) of this section of this regulation. (4) In any investment specifically authorized by court order, or authorized by the instrument creating the fiduciary relationship, in the case of trusts created by a corporation, its subsidiaries and affiliates or by several individual settlors who are closely related, provided that such investment is not made under this subparagraph for the purpose of avoiding the provisions of paragraph (b) of this section of this regulation. (5) In such other manner as shall be approved in writing by the State Bank Department. September 1, 2005 Agency # 210.00 SECTION 8 CHANGE IN CONTROL 48-317.1 - TRANSFERS AFFECTING CHANGE IN CONTROL (Reference A.C.A. § 23-48-317) (a) The acquisition of a state bank by a bank holding company, or the acquisition of twentyfive percent (25%) or more of the common stock of a state bank or a bank holding company controlling a state bank subsidiary, will be considered a change in control. The ownership of more than five percent (5%) of the outstanding voting shares of a state bank is considered a controlling interest. (b) Any person(s) or entity desiring to obtain "control" of a state chartered bank or bank holding company controlling a state bank subsidiary shall be required to file an application with the Commissioner on a form prescribed by the Commissioner containing the information set forth in A.C.A. §23-48-317(d) and such other information as the Commissioner may require. (c) An application for a change in control which will authorize the applicant’s ownership to initially exceed of twenty-five percent (25%) of the stock in a bank or bank holding company controlling a state bank subsidiary shall be accompanied by a filing fee of $5,000. 48-317.2 - TIME FOR COMMISSIONER'S RULING (Reference A.C.A. § 23-48-317) Generally, the Commissioner will consider and make a decision on a change in control application within thirty (30) days of receipt of all requested information. However, the Commissioner reserves the right to extend the such period as necessary to make a complete determination on the application. 48-317.3 - ANTI-COMPETITIVE ACQUISITIONS (Reference A.C.A. § 23-48-317) If a proposed change in control would result in one person, or group of associated persons, firms or corporations, controlling two or more banks competing in the same market, the Commissioner would be inclined to disapprove the transfer unless the applicant clearly demonstrated that the proposed transaction would not materially reduce competition in the market. September 1, 2005 Agency # 210.00 DIVIDENDS 48-203.1 - DIVIDENDS; PRIOR APPROVAL (Reference A.C.A. § 23-48-203) Prior approval of the Commissioner shall be obtained prior to declaration and payment of any dividend by any State Bank which shall amount to seventy-five percent (75%) or more of the net profits of the bank after all taxes for the current year (annualized) plus seventy-five (75%) of the retained net profits for the immediately preceding year. STOCK ISSUE AND TRANSFER ISSUE OF STOCK 48-311.1 - PAYMENT FOR STOCK (Reference A.C.A. § 23-48-311) Under Section 8, Article 12 of the Arkansas Constitution, corporate stock can be issued only for "money or property actually received or labor done". A bank may not issue stock against the purchaser's promissory note; and it cannot issue stock at a price less than the par value thereof. Bank of Dermott v. Measel, 172 Ark. 193; Bank of Manila v. Wallace, 177 Ark. 190; Blanks v. American So. Trust Co., 177 Ark. 832; Murray v. Murray Laboratories, Inc., 223 Ark. 907; Bank of Commerce v. Goolsby, 129 Ark. 416. 48-311.2 - DISCRIMINATORY SALES OF STOCK (Reference A.C.A. § 23-48-311) The issuance of new shares at an inadequate price operates to dilute the value of outstanding shares. Therefore, even when the shareholders agree that shares may be sold free of preemptive rights the directors are under a fiduciary duty to fix a reasonable price for the shares thus sold. 48-313.1 - COMMON AND PREFERRED; VOTING, NONVOTING (Reference A.C.A. 23-48-313) A bank may issue both common and preferred stock of different classifications. It may also issue voting and nonvoting stock; but stock issued as nonvoting may nevertheless vote in respect to a dissolution, merger, consolidation or in respect to any proposal that would adversely affect the preferences, privileges and other rights annexed to the shares; nor may a stockholder's right to vote, under Article 12, Section 8, of the Arkansas Constitution, upon a proposal to increase the capital stock be abridged through the issuance of nonvoting stock. September 1, 2005 Agency # 210.00 48-313.2 - FRACTIONAL SHARES; SCRIP (Reference A.C.A. § 23-48-313) Unless prohibited by the Articles of Agreement, or any amendment thereto, or ByLaws, a bank may issue a certificate for a fractional share. The creation of fractional shares sometimes occurs in connection with stock dividends. In lieu of issuing certificates for fractional shares the bank may issue scrip. A scrip certificate specifies that the holder has rights in respect to a designated number of fractional shares; and a person holding scrip certificates covering fractional interests equal to a full share may exchange such certificates for a certificate covering one share. Unless otherwise provided in the Articles or ByLaws, a fractional share shall (but scrip will not) entitle the holder to vote or receive dividends. Where scrip is issued, the directors may provide that it shall become void unless exchanged for certificates representing full shares before a specified date. Where scrip is issued it is customary to establish certain officials as a clearing house to handle the sale of the fractional interests whose holders desire to sell and to handle the purchase for those who desire to purchase additional rights for the purpose of matching them into full shares. Further, where scrip is issued, the directors may provide that it will become void if not exchanged for certificates representing full shares before a specified date; or the State Banking Board may provide that the shares for which the scrip is exchangeable may be sold by the bank and the proceeds thereof distributed to the holders of such scrip. 48-314.1 - PREEMPTIVE RIGHTS (Reference A.C.A. § 23-48-314) (a) Banks chartered on or prior to May 30, 1997. Unless otherwise provided by the Articles of Agreement, or an amendment thereto, every stockholder, upon the sale for cash of any new stock of the same class as that which the stockholder already holds, shall have the right to purchase his/her pro rata share thereof at a price not exceeding the price at which it may be offered to others, which price may be in excess of par. Where the Articles of Agreement, or amendment thereto, do not prohibit such preemptive rights, the terms and conditions of such rights, and the time limit fixed for the exercise thereof may be prescribed in the Articles of Agreement, or amendment, or, if not so prescribed in the Articles of Agreement, or amendment, then in the ByLaws or in the resolution of the board of directors adopted in connection with such stock increase. (b) Banks chartered after May 30, 1997. Except as expressly provided in the Articles of Agreement, or an amendment thereto, upon the sale for cash of any new stock whether or not of the same class as the stock which is outstanding, no stockholder shall have the right to purchase any portion thereof by reason of his/her stock ownership. September 1, 2005 Agency # 210.00 48-314.2 - WAIVER OF PREEMPTIVE RIGHTS (Reference A.C.A. § 23-48-314) The waiver of preemptive rights of a shareholder, if applicable, involves a personal act by each stockholder; and such waiver cannot be accomplished by a stockholder vote at a stockholders' meeting, except for the waiver by shareholders of any applicable preemptive rights which would attach to shares which are authorized by a due vote of the shareholders to be issued upon the conversion of any convertible capital notes or pursuant to any stock option, stock purchase, employee stock ownership plan or other compensation plan authorized by A.C.A. § 2347101(a)(10). 48-316.1 - STOCK ISSUANCE TO BE REPORTED (Reference A.C.A. § 23-48-316) The initial issuance of shares of a state bank or a bank holding company which has a state bank subsidiary pursuant to the provisions of the Articles of Incorporation, or any amendment thereto, authorizing the issuance of additional shares must be reported in each instance as and when issued. 48-316.2 - TRANSFERS TO BE REPORTED (Reference A.C.A. § 23-48-316) Every transfer of outstanding shares issued by a state bank or a bank holding company which has a state bank subsidiary shall be promptly reported to the Commissioner. If an Arkansas bank holding company is a reporting company under §§13 or 15(d) of the Securities and Exchange Act of 1934, then the reporting of the transfer of shares shall only be required once each calendar year. 48-316.3 - INFORMATION REQUIRED ON REPORTED TRANSFERS (Reference A.C.A. § 23-48-316) Except in the case of bank holding companies which are reporting companies, the bank or the bank holding company must certify to the Commissioner the number of shares held by the transferee prior to such transfer and the name of every person known by it to be holding any shares as nominee of the transferee, or in trust for or otherwise for the benefit of such transferee, and the number of shares so held by each such person. In the case of a bank holding company which is a reporting company under the Securities and Exchange Act of 1934, the bank holding company shall promptly report after the calendar year end all transactions by any record owner of shares (other than a nominee for an institution) which owns as of the end of such calendar year 3% or more of the outstanding stock of the bank holding company. Such report shall show for each transaction by such persons the number of shares held by such person prior to such transfer and the name of every person known by the bank holding company to be holding any shares as nominee of such person, or in trust for or otherwise for the benefit of such person, and the number of shares so held. September 1, 2005 Agency # 210.00 STOCKHOLDERS' MEETINGS 48-320.1 - PROXY VOTING (Reference A.C.A. § 23-48-329) Proxy voting is authorized. A proxy, unless it otherwise provides, will expire eleven (11) months from the date of its execution. Ordinarily, a proxy would become void upon the death or insanity of the stockholder who executed the proxy. However, a proxy may be of indefinite duration if it is coupled with an interest. 48-318.1 - NOTICE OF MEETING (Reference A.C.A. § 23-48-318) Written notice of a special meeting must be given to the shareholders by mail according to the bylaws, but in no event for less than ten (10) days. Written notice of an annual meeting, even though only routine matters are to be considered at the meeting, must be given at least ten (10) days before the meeting. If the capital stock or the bonded indebtedness is to be increased at either a special or annual meeting, 60 days notice is required under Article 12, Section 8 of the Arkansas Constitution. The notice of a special or annual meeting should indicate the time, place and purpose of the meeting and be sent by first class mail. The act of mailing constitutes notice. Any officer may sign the notice. Moreover, at an annual meeting, if the charter is to be amended or any other extraordinary matters submitted to the stockholders, the notice of the meeting must specify that such charter amendment or other such extraordinary matters will be submitted. 48-320.2 - CUMULATIVE VOTING (Reference A.C.A. § 23-48-320) (a) For state banks incorporated on or before May 30, 1997, unless otherwise provided in the Articles or bylaws, cumulative voting for directors or on any other issues, is permitted. Thus, if there are five (5) directors to be elected, a stockholder owning fifty (50) shares could vote fifty (50) shares for each director or the stockholder could cast two hundred fifty (250) votes for one director (A.C.A. § 2332222). The statute authorizes cumulative voting in connection with the election of directors or on any other issue. (b) For state banks incorporated after May 30, 1997, cumulative voting is not permitted unless and only to the extent provided for in the Articles of Incorporation of the bank. September 1, 2005 Agency # 210.00 DIRECTORS AND STOCKHOLDERS 48-322.1 - BOARD OF DIRECTORS (Reference A.C.A. § 23-48-322) The affairs of every bank organized under the laws of this state shall be managed and controlled by a board of directors of not less than three (3) persons who shall be selected at such times and in such manner as may be provided by its Articles of Incorporation or bylaws. Except as required in the Articles of Incorporation or bylaws, no director of a state bank shall be required to be a stockholder of such bank. 48-322.2 - OFFICER OR DIRECTOR REMOVAL (Reference A.C.A. § 23-48-322) Any officer or director found by the Commissioner to be violating state or federal law, State Bank Department Rules and Regulations, or basic principals of safety and soundness in the operation of a bank may be reported in writing to the directors of the bank of which he is an officer or director, or the Commissioner may cause such officer or director to be removed from service to the institution by means of a cease and desist order issued by the Commissioner against the bank and its board of directors. If the Commissioner reports such activities in writing to the bank's board of directors and the Board neglects or refuses to remove such officer or director, the directors may be individually liable for any loss that may occur to the bank by reason of their lack of action and may be subject to the assessment of monetary penalties for such failure by the Commissioner. PROCEDURE AT BANK MEETINGS DIRECTORS' MEETINGS 48-322.3 - DIRECTORS' MEETINGS (Reference A.C.A. § 23-48-322) The procedure at the regular and special meeting of the Board of Directors shall be governed by the terms of the Articles of Incorporation and Bylaws of the bank; provided, however, no proxy given by a director for any meeting of the Board of Directors shall be effective for determining a quorum, voting or any other purpose. September 1, 2005 Agency # 210.00 RESERVES OF BANKS 48-202 - PENALTYFAILURE TO MAINTAIN RESERVE (Reference A.C.A. § 23-48-202) If any state bank shall fail during any period to maintain the reserve required under the Banking Code, the Commissioner may require such bank to pay a penalty computed on the basis of eight percent (8%) per annum on the amount of such deficit for the period that the deficit continues; provided that the Commissioner, in his/her discretion, may waive any penalty for a period which is less than twentyfive dollars ($25.00). This penalty shall not prevent the Commissioner, under other applicable provisions of the law, from placing a state bank in liquidation due to a violation of reserve requirements. September 1, 2005 Agency # 210.00 SECTION 9 BRANCH BANKS 48-309.2 - BANK FICTITIOUS NAMES (Reference A.C.A. § 23-48-309) A state bank planning to file an application for use of a fictitious name must complete the following procedures prior to filing an application with the State Bank Department: A) Publish legal notice of intention to file an application for use of a fictitious name one (1) time in a newspaper of statewide circulation. Such notice shall include the current corporate name, the proposed fictitious name, and the location or locations where the proposed fictitious name will be used. A copy of the legal notice must accompany the application; and B) Request a current check of both state and federal trademark or servicemark filings on the proposed fictitious name. This request may be implemented through the Arkansas State Library, Reference Department, One Capitol Mall, Little Rock, Arkansas 72201. The fax number for the Library is 501-682-1529. Requests must be submitted in writing and the check will be performed in the exact or almost exact name as requested. Evidence must accompany the application for use of a fictitious name verifying the applicant has made a trademark or servicemark search and no trademark or servicemark exists for the proposed fictitious name. Once the application for use of a fictitious name is received by the State Bank Department, notice of the filing of the application will be sent to all state-chartered banks by electronic transmission. Any protestant will have seven (7) days from the date the Department notice was sent to file an official protest to the application. An official protest must be provided to the Department in written form delineating the reasons for the protest and must be accompanied by a filing fee of twenty-five dollars ($25). The Bank Commissioner will make the final determination on the use of a fictitious name. Notwithstanding the above requirements, an applicant bank that has previously filed and been approved for the use of a specific fictitious name is not required to perform the publication of notice or trademark search requirements for subsequent use of the same fictitious name. However, the bank must file an application for subsequent use of the same fictitious name at a new location. April 2, 2007 Agency # 210.00 FULL SERVICE BRANCHES; LIMITED PURPOSE OFFICES 48-701 HEALTHY BANK (Reference A.C.A. § 23-48-701) A “healthy bank” is defined as an institution meeting all of the following criteria: 1) Received a composite rating of 1 or 2 under the Uniform Financial Institutions Rating System (CAMELS) as a result of its most recent commercial bank examination; 2) Received a satisfactory or better Community Reinvestment Act (CRA) rating from its primary federal regulator at its most recent examination; 3) Received a compliance rating of 1 or 2 from its primary federal regulator at its most recent examination; 4) Is well-capitalized a