ENROLLED
COMMITTEE SUBSTITUTE
FOR
Senate Bill No. 443
(Senators Manchin, By Request, and Helmick,
original sponsors)
____________
[Passed March 11, 1995; in effect ninety days from passage.]
____________
AN ACT to amend and reenact section twenty-six, article four,
chapter thirty-one-a of the code of West Virginia, one
thousand nine hundred thirty-one, as amended, relating to
the limits to which banks can loan or extend credit to any
one person or common enterprise.
Be it enacted by the Legislature of West Virginia:
That section twenty-six, article four, chapter thirty-one-a
of the code of West Virginia, one thousand nine hundred
thirty-one, as amended, be amended and reenacted to read as
follows:
ARTICLE 4. BANKING INSTITUTIONS AND SERVICES GENERALLY.
§31A-4-26.
Limitation on loans and extensions of credit;
limitation on investments; loans to executive
officers and directors of banks and employees of
the banking department; exceptions; valuation of securities.
(a) (1) The total loans and extensions of credit made by a
state-chartered banking institution to any one person or common
enterprise and not fully secured, as determined in a manner
consistent with subdivision (2) of this subsection, shall not
exceed fifteen percent of the unimpaired capital and unimpaired
surplus of that state-chartered banking institution initially
determined for the period such loan or extension of credit is
made.
(2) Where the total loans and extensions of credit by a
state-chartered banking institution to any one person or common
enterprise are fully secured by readily marketable collateral
having a market value, as determined by reliable and continuously
available price quotations, at least equal to the outstanding
amount of such loans and extensions, then the bank may provide
such loans or extensions of up to ten percent of the unimpaired
capital and unimpaired surplus of that state-chartered banking
institution initially determined for the period such loan or
extension is made. This limitation shall be separate from and in
addition to the limitation contained in subdivision (1) of this
subsection.
(3) For the purposes of this subsection:
(A) The term "loans and extensions of credit" shall include all direct or indirect advances of funds to a person made on the
basis of any obligation of that person to repay the funds or
repayable from specific property pledged by or on behalf of the
person and to the extent specified by the commissioner of
banking, such terms shall also include any liability of a
state-chartered banking institution to advance funds to or on
behalf of a person pursuant to a contractual commitment;
(B) The term "person" shall include an individual,
partnership, sole proprietorship, society, association, firm,
institution, company, public or private corporation,
not-for-profit corporation, state, governmental agency, bureau,
department, division or instrumentality, political subdivision,
county commission, municipality, trust, syndicate, estate or any
other legal entity whatsoever, formed, created or existing under
the laws of this state or any other jurisdiction;
(C) The term "unimpaired capital and unimpaired surplus"
means the amount of total equity capital outstanding as indicated
in the bank's most recent quarterly report of condition and
income as filed with the commissioner of banking pursuant to
section nineteen of this article, plus the amount of the
allowance for loan losses, minus the amount of goodwill or other
nonmarketable intangible assets included in such quarterly report pursuant to generally accepted accounting principles. Unrealized
gains and losses on the bank's securities and loan portfolios
shall be included in the calculation of total equity capital to
the extent required by generally accepted accounting principles
and applicable federal or state law, rule or regulation; and
(D) The term "common enterprise" includes, but is not
limited to, persons and entities who are so related by business
or otherwise that the expected source of repayment on the loan or
extension of credit is substantially the same for each person or
entity.
(4) The limitations contained in this subsection shall be
subject to the following exceptions:
(A) Loans or extensions of credit arising from the discount
of commercial or business paper evidencing an obligation to the
person negotiating it with recourse shall not be subject to any
limitation based on capital and surplus;
(B) The purchase of bankers' acceptances of the kind
described in section thirteen of the Federal Reserve Act and
issued by other banks shall not be subject to any limitation
based on capital and surplus;
(C) Loans and extensions of credit having a term of ten
months or less and secured by bills of lading, warehouse receipts, or similar documents transferring or securing title to
readily marketable staples shall be subject to a limitation of
twenty percent of unimpaired capital and unimpaired surplus in
addition to the general limitations set forth in subdivision (1)
of this subsection, provided the market value of the staples
securing each additional loan or extension of credit at all times
equals or exceeds one hundred fifteen percent of the outstanding
amount of such loan or extension of credit. The staples shall be
fully covered by insurance whenever it is customary to insure
such staples. If collateral values of the staples fall below the
levels required herein, to the extent that the loan is no longer
in conformance with its collateral requirements and exceeds the
general fifteen percent limitation, the loan must be brought into
conformance within five business days, except where judicial
proceedings, regulatory actions or other extraordinary
occurrences prevent the bank from taking action;
(D) Loans or extensions of credit secured by bonds, notes,
certificates of indebtedness or treasury bills of the United
States or by other such obligations fully guaranteed as to
principal and interest by the United States or by bonds, notes,
certificates of indebtedness which are general obligations of the
state of West Virginia or by other such obligations fully guaranteed as to principal and interest by the state of West
Virginia shall not be subject to any limitation based on capital
and surplus;
(E) Loans or extensions of credit to or secured by
unconditional takeout commitments or guarantees of any
department, agency, bureau, board, commission or establishment of
the United States or of the state of West Virginia or any
corporation wholly owned directly or indirectly by the United
States shall not be subject to any limitation based on capital
and surplus;
(F) Loans or extensions of credit secured by a segregated
deposit account in the lending bank shall not be subject to any
limitation based on capital and surplus;
(G) Loans or extensions of credit to any banking institution
or to any receiver, conservator or other agent in charge of the
business and property of such banking institution or other
federally insured depository institution, when such loans or
extensions of credit are approved by the commissioner of banking,
shall not be subject to any limitation based on capital and
surplus;
(H) (i) Loans and extensions of credit arising from the
discount of negotiable or nonnegotiable installment consumer paper which carries a full recourse endorsement or unconditional
guarantee by the person or common enterprise transferring the
paper shall be subject under this section to a maximum limitation
equal to twenty-five percent of such unimpaired capital and
unimpaired surplus, notwithstanding the collateral requirements
set forth in subdivision (2) of this subsection.
(ii) If the bank's files or the knowledge of its officers of
the financial condition of each maker of such consumer paper is
reasonably adequate, and an officer of the bank designated for
that purpose by the board of directors of the bank certifies in
writing that the bank is relying primarily upon the
responsibility of each maker for payment of such loans or
extensions of credit and not upon any full or partial recourse
endorsement or guarantee by the transferor, the limitations of
this section as to the loans or extensions of credit of each such
maker shall be the sole applicable loan limitations;
(I) (i) Loans and extensions of credit secured by shipping
documents or instruments transferring or securing title covering
livestock or giving a lien on livestock when the market value of
the livestock securing the obligation is not at any time less
than one hundred fifteen percent of the face amount of the note
covered, shall be subject under this section, to a maximum limitation equal to twenty-five percent of such unimpaired
capital and unimpaired surplus, notwithstanding the collateral
requirements set forth in subdivision (2) of this subsection.
(ii) Loans and extensions of credit which arise from the
discount by dealers in livestock of paper given in payment for
livestock, which paper carries a full recourse endorsement or
unconditional guarantee of the seller and which are secured by
the livestock being sold, shall be subject under this section, to
a limitation of twenty-five percent of such unimpaired capital
and unimpaired surplus, notwithstanding the collateral
requirements set forth in subdivision (2) of this subsection.
(iii) If collateral values of the livestock documents,
instruments or discount paper fall below the levels required
herein, to the extent that the loan is no longer in conformance
with its collateral requirements and exceeds the general fifteen
percent limitation, the loan must be brought into conformance
within thirty business days, except where judicial proceedings,
regulatory actions or other extraordinary occurrences prevent the
bank from taking action;
(J) Loans or extensions of credit to the student loan
marketing association shall not be subject to any limitation
based on capital and surplus; and
(K) Loans or extensions of credit to a corporation owning
the property in which that state-chartered banking institution is
located, when that state-chartered banking institution has an
unimpaired capital and surplus of not less than one million
dollars or when approved in writing by the commissioner of
banking, shall not be subject to any limitation based on capital
and surplus.
(5) (A) The commissioner of banking may prescribe rules to
administer and carry out the purposes of this subsection
including rules to define or further define terms used in this
subsection and to establish limits or requirements other than
those specified in this subsection for particular classes or
categories of loans or extensions of credit;
(B) The commissioner of banking may also prescribe rules to
deal with loans or extensions of credit, which were not in
violation of this section prior to the effective date of this
article, but which will be in violation of this section upon the
effective date of this article; and
(C) The commissioner of banking also shall have authority to
determine when a loan putatively made to a person shall for
purposes of this subsection be attributed to another person.
(b) (1) Except as hereinafter provided or otherwise permitted by law, nothing herein contained shall authorize the
purchase by a state-chartered banking institution for its own
account of any shares of stock of any corporation:
Provided,
That a state-chartered banking institution may purchase and sell
securities and stock without recourse, solely upon the order and
for the account of customers.
(2) In no event shall the total amount of investment
securities of any one obligor or maker held by a state-chartered
banking institution for its own account, exceed fifteen percent
of the unimpaired capital and unimpaired surplus of that
state-chartered banking institution.
(3) For purposes of this subsection:
(A) The term "investment securities" shall include
marketable obligations, evidencing indebtedness of any person in
the form of stocks, bonds, notes and/or debentures; "investment
securities" may be further defined by regulation of the
commissioner of banking;
(B) The term "person" shall include any individual,
partnership, sole proprietorship, society, association, firm,
institution, company, public or private corporation,
not-for-profit corporation, state, governmental agency, bureau,
department, division or instrumentality, political subdivision, county commission, municipality, trust, syndicate, estate or any
other legal entity whatsoever, formed, created or existing under
the laws of this state or any other jurisdiction; and
(C) The term "unimpaired capital and unimpaired surplus"
shall have the same meaning as set forth in subsection (a) of
this section.
(4) The limitations contained in this subsection shall be
subject to the following exceptions:
(A) Obligations of the United States or its agencies;
(B) General obligations of any state or of any political
subdivision thereof;
(C) Obligations issued under authority of the federal Farm
Loan Act, as amended, or issued by the thirteen banks for
cooperatives or any of them or the federal home loan banks;
(D) Obligations which are insured by the secretary of
housing and urban development under Title XI of the National
Housing Act (12 USC § 1749aaa et seq.);
(E) Obligations which are insured by the secretary of
housing and urban development hereafter in this sentence referred
to as the "secretary" pursuant to Section 207 of the National
Housing Act (12 USC § 1713), if the debentures to be issued in
payment of such insured obligations are guaranteed as to principal and interest by the United States;
(F) Obligations, participations or other instruments of or
issued by the federal national mortgage association or the
government national mortgage association, or mortgages,
obligations or other securities which are or ever have been sold
by the federal home loan mortgage corporation pursuant to Section
305 or 306 of the federal Home Loan Mortgage Corporation Act (12
USC § 1454 or § 1455);
(G) Obligations of the federal financing bank;
(H) Obligations or other instruments or securities of the
student loan marketing association;
(I) Obligations of the environmental financing authority;
(J) Such obligations of any local public agency (as defined
in Section 110(h) of the Housing Act of 1949 (42 USC § 1460 (h))
as are secured by an agreement between the local public agency
and the secretary of housing and urban development in which the
local public agency agrees to borrow from said secretary and said
secretary agrees to lend to said local public agency, moneys in
an aggregate amount which (together with any other moneys
irrevocably committed to the payment of interest on such
obligations) will suffice to pay, when due, the interest on and
all installments (including the final installment) of the principal of such obligations, which moneys under the terms of
said agreement are required to be used for such payments;
(K) Obligations of a public housing agency as that term is
defined in the United States Housing Act of 1937, as amended, (42
USC § 1437a) as are secured:
(i) By an agreement between the public housing agency and
the secretary in which the public housing agency agrees to borrow
from the secretary, and the secretary agrees to lend to the
public housing agency, prior to the maturity of such obligations,
moneys in an amount which, together with any other moneys
irrevocably committed to the payment of interest on such
obligations, will suffice to pay the principal of such
obligations with interest to maturity thereon, which moneys under
the terms of said agreement are required to be used for the
purpose of paying the principal of and the interest on such
obligations at their maturity;
(ii) By a pledge of annual contributions under an annual
contributions contract between such public housing agency and the
secretary if such contract shall contain the covenant by the
secretary which is authorized by Section 11 (42 USC §
1437i(a)(1)(B)) of the United States Housing Act of 1937, as
amended, and if the maximum sum and the maximum period specified in such contract pursuant to said section, shall not be less than
the annual amount and the period for payment which are requisite
to provide for the payment when due of all installments of
principal and interest on such obligations; or
(iii) By a pledge of both annual contributions under an
annual contributions contract containing the covenant by the
secretary which is authorized by Section 11 of the United States
Housing Act of 1937 (42 USC § 1437i(a)(1)(B)) and a loan under an
agreement between the local public housing agency and the
secretary in which the public housing agency agrees to borrow
from the secretary, and the secretary agrees to lend to the
public housing agency, prior to the maturity of the obligations
involved, moneys in an amount which, together with any other
moneys irrevocably committed under the annual contributions
contract to the payment of principal and interest on such
obligations will suffice to provide for the payment when due of
all installments of principal and interest on such obligations,
which moneys under the terms of the agreement are required to be
used for the purpose of paying the principal and interest on such
obligations at their maturity; and
(L) Obligations of a corporation owning the property in
which that state-chartered banking institution is located when that state-chartered banking institution has an unimpaired
capital and unimpaired surplus of not less than one million
dollars or when approved in writing by the commissioner of
banking.
(5) Notwithstanding any other provision in this subsection,
a state-chartered banking institution may purchase for its own
account shares of stock issued by a corporation authorized to be
created pursuant to Title IX of the Housing and Urban Development
Act of 1968 (42 USC § 3931 et seq.) and may make investments in
a partnership, limited partnership, or joint venture formed
pursuant to Section 907 (a) or 907 (c) of that act (42 USC § 3937
(a) or (c)), and may purchase shares of stock issued by any West
Virginia housing corporation and may make investments in loans
and commitments for loans to any such corporation:
Provided,
That in no event shall the total amount of such stock held for
its own account and such investments in loans and commitments
made by the state-chartered banking institution exceed at any
time five percent of the unimpaired capital and unimpaired
surplus of that state-chartered banking institution.
(6) Notwithstanding any other provision in this subsection,
a state-chartered banking institution may purchase, for its own
account, shares of stock of small business investment companies chartered under the laws of this state, which are licensed under
the act of Congress known as the "Small Business Investment Act
of 1958", as amended, and of business development corporations
created and organized under the act of the Legislature known as
the "West Virginia Business Development Corporation Act", as
amended:
Provided, That in no event shall any such
state-chartered banking institution hold shares of stock in small
business investment companies and/or business development
corporations in any amount aggregating more than fifteen percent
of the unimpaired capital and unimpaired surplus of that
state-chartered banking institution.
(7) Notwithstanding any other provision of this subsection,
a state-chartered banking institution may purchase for its own
account shares of stock of a bankers' bank or a bank holding
company which owns or controls such bankers' bank, but in no
event shall the total amount of such stock held by such
state-chartered banking institution exceed at any time fifteen
percent of the unimpaired capital and unimpaired surplus of that
state-chartered banking institution and in no event shall the
purchase of such stock result in that state-chartered banking
institution acquiring more than twenty percent of any class of
voting securities of such bankers' bank or of the bank holding company which owns or controls such bankers' bank.
(8) Notwithstanding any other provision of this subsection,
a state-chartered banking institution may invest its funds in any
investment authorized for national banking associations. Such
investments by state-chartered banking institutions shall be on
the same terms and conditions applicable to national banking
associations. The commissioner of banking may, from time to
time, provide notice to state-chartered banking institutions of
authorized investments under this paragraph.
(9) The commissioner of banking may prescribe rules to
administer and carry out the purposes of this subsection,
including rules to define or further define terms used in this
subsection and to establish limits or requirements other than
those specified in this subsection for particular classes or
categories of investment securities.
(c) In the event of a material decline of unimpaired capital
and unimpaired surplus of a state-chartered bank during any
quarterly reporting period of more than twenty percent from that
amount reported in the bank's most recent report of income and
condition, or where there is a decrease of more than thirty
percent in any twelve-month period, the bank shall review its
outstanding loans, extensions of credit and investments and report to the commissioner of banking those loans, extensions and
investments that exceed the limitations of this section using the
bank's current re-evaluated unimpaired capital and unimpaired
surplus. The report shall detail the bank's position in each
such loan, extension of credit, and investment. The commissioner
may, within his or her discretion, require that such loans,
extensions of credit and investments be brought into conformity
with the bank's current re-evaluated legal lending and investment
limitation.
(d) Notwithstanding any other provision of this section, in
order to ensure a bank's safety and soundness, the commissioner
of banking retains the authority to direct any state-chartered
bank to recalculate its lending and investment limits at more
frequent intervals than otherwise provided herein and to require
all outstanding loans, extensions of credit and investments be
brought into conformance with the re-evaluated limitations. In
such cases, the commissioner will provide the bank a written
notice explaining briefly the specific reasons why the
determination was made to require the more frequent calculations.
(e) Loans to directors or executive officers are subject to
the following limitations:
(1) A director or executive officer of any banking institution may not borrow, directly or indirectly, from a
banking institution with which he is connected, any sum of money
without the prior approval of a majority of the board of
directors or discount committee of the banking institution, or of
any duly constituted committee whose duties include those usually
performed by a discount committee. Such approval shall be by
resolution adopted by a majority vote of such board or committee,
exclusive of the director or executive officer to whom the loan
is made.
(2) If any director or executive officer of any bank owns or
controls a majority of the stock of any corporation, or is a
partner in any partnership, a loan to such corporation or
partnership shall constitute a loan to such director or officer.
(3) For purposes of this subsection, an "executive officer"
means:
(A) A person who participates or has authority to
participate, other than in the capacity of a director, in major
policy-making functions of the company or bank, regardless of any
official title, salary or other compensation. The chairman of
the board, the president, every vice president, the cashier, the
secretary and the treasurer of a company or bank are considered
executive officers unless the officer is excluded, by resolution of the board of directors or by the bylaws of the bank or company
from participation, other than in the capacity of director, in
major policy-making functions of the bank or company, and the
officer does not actually participate therein.
(B) An executive officer of a company of which the bank is
a subsidiary, and any other subsidiary of that company, unless
the executive officer of the subsidiary is excluded, by name or
by title, from participation in major policymaking functions of
the bank by resolutions of the boards of directors of both the
subsidiary and the bank and does not actually participate in such
major policy-making functions.
(f) The commissioner of banking and any employee of the
department of banking may not borrow, directly or indirectly, any
sum of money from a state chartered banking institution which is
subject to examination by the commissioner or the department.
(g) Securities purchased by a state chartered banking
institution shall be entered upon the books of the bank at actual
cost. For the purpose of calculating the undivided profits
applicable to the payment of dividends, securities shall not be
valued at a valuation exceeding their present cost as determined
by amortization of premiums and accretion of discounts pursuant
to generally accepted accounting principles, that is, by charging to profit and loss a sum sufficient to bring them to par at
maturity:
Provided, That securities held for trade or
permissible marketable equity securities and any other types of
debt securities which pursuant to generally accepted accounting
principles are to be carried on the bank's books at fair market
value shall have the unrealized market appreciation and
depreciation included in the income and capital as permitted by
such generally accepted accounting principles.
(h) The market value of securities purchased and loans
extended by a state chartered banking institution shall be
reported in all public reports and quarterly reports to the
commissioner pursuant to section nineteen of this article in
accordance with generally accepted accounting principles and any
applicable state or federal law, rule or regulation.
Email
Webmaster | © 2024 West Virginia Legislature ***
