Topic: Lending Limits
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Are there any restrictions against allowing two or more members of the same family to serve as voting directors on community bank boards in Illinois?
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We are not aware of any restrictions on members of the same family simultaneously serving as voting directors on a community bank board, provided they are duly elected or appointed. We do recommend exercising caution regarding loans to directors or corporations in which the directors have a controlling interest when such loans require board approval…
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We are a two-bank holding company, and we are considering a merger that would change our CRA classification from a small bank to an intermediate small bank. Our total assets would remain under $500 million after the merger. Are there any other regulatory implications besides CRA classification that we should be aware of? We use the FFIEC 051 for our Call Report, and the merger will not result in us crossing the $1 billion asset threshold. Both banks are HMDA reporters, and all of our customer forms and agreements are already identical.
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We are not aware of any other regulatory impact that might result from increasing your bank’s asset size to a level that remains under $500 million. As you noted, your bank will continue to use the FFIEC 051 Call Report for banks with domestic offices only and total assets less than $1 billion. Your bank…
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For purposes of calculating our lending limits, should a borrower’s total outstanding debt include the balance of a charged off loan? If so, for how long should the charged off debt be included in the total?
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Yes, we believe a borrower’s total outstanding liabilities to a bank include a debt that has been charged off if it remains enforceable by the bank. Under the Illinois Banking Act, the total outstanding liabilities of any one person at one time to a state bank must not exceed 25% of the bank’s unimpaired capital…
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I understand that we cannot lend more than 25% of our unimpaired capital and surplus to any one borrower. What if we extend loans to several family members who operate a family farm as an LLC? We have extended some loans to the LLC and other loans to the family members as individuals, but all of the loans are secured by the same farm property. The borrowers qualified for the loans on their own, without relying on other family members or the LLC.
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No, we do not believe that these loans necessarily must be aggregated. However, there is a possibility that IDFPR examiners could criticize this concentration of loans because they are all secured by the same property. As a general rule, loans of an LLC and its individual members are not aggregated for lending limit purposes, unless…
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We made a loan to a company in which one of our bank’s executive officers holds a controlling interest. However, the executive officer is not obligated on the loan in any way. We understand that the loan is subject to the restrictions on loans to bank insiders under Regulation O. But is the loan also subject to Regulation O’s specific restrictions on loans to executive officers?
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No, the loan to the corporation controlled by the executive officer is not subject to Regulation O’s specific restrictions on loans to “executive officers.” However, you are correct that the loan would be subject to all of Regulation O’s restrictions on loans to “insiders.” Under Regulation O, the definition of “insider” means any executive officer,…
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A bank employee recently was promoted to an executive officer position. Two years before her promotion, she obtained a home equity line of credit (HELOC) from our bank for $250,000. The HELOC was approved for any purpose, so we consider it an “other purpose” loan under Regulation O. Do we need to modify the HELOC to conform with Regulation O’s $100,000 limitation on “other purpose” loans to executive officers? Or is the HELOC “grandfathered” because it was extended before she became an executive officer? Will her future draws on the HELOC require prior board approval? Will this HELOC count toward her aggregate Regulation O limit?
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No, we do not believe that you need to modify the preexisting HELOC to conform to the $100,000 “other purpose” loan limitation for executive officers. The OCC and FRB long have taken the position that “the requirements of Regulation O apply at the time a loan or extension of credit is made.” We reached out…
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We are a non-member, state chartered bank. Can we can use our holding company stock as collateral on a loan to a customer?
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Yes, state banks are permitted to use their holding company stock as collateral for loans to any borrower, provided that the aggregate amount of all transactions involving any one affiliate, including a bank holding company, does not exceed 10% of the bank’s unimpaired capital and surplus, and the total aggregate of transactions involving all affiliates does not exceed…
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Following our recent purchase of two branches, we acquired goodwill and core deposit intangible assets. Does the legal lending limit calculation include goodwill and core deposit intangible assets?
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No, the lending limit calculations do not include goodwill and core deposit intangible assets. Federal regulations limit loans to any one borrower to 15% of the bank’s capital and surplus. “Capital and surplus” means “a national bank’s . . . Tier 1 and Tier 2 capital calculated under the risk-based capital standards applicable to the…
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Following our recent purchase of two branches, we acquired goodwill and core deposit intangible assets. Does the legal lending limit calculation include goodwill and core deposit intangible assets?
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No, the lending limit calculations do not include goodwill and core deposit intangible assets. Federal regulations limit loans to any one borrower to 15% of the bank’s capital and surplus. “Capital and surplus” means “a national bank’s . . . Tier 1 and Tier 2 capital calculated under the risk-based capital standards applicable to the…
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We have a request for a line of credit that would exceed our lending limit, since it would equal about 50% of our unimpaired capital and unimpaired surplus. However, we would not make any advances on the line of credit before obtaining grain warehouse receipts collateralizing at least 90% of the amount of each advance. Would that violate our lending limit? We also are considering participations for half of the line amount.
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We believe that the proposed loan could comply with your bank’s lending limit under the Illinois Banking Act, since the advances secured by warehouse receipts would be subject to a higher lending limit: 50% of your unimpaired capital and unimpaired surplus (rather than 25%). In general, the Illinois Banking Act limits your bank’s outstanding liabilities…