I. RESTRICTIONS ON LOANS TO OFFICERS AND DIRECTORS
Except where more stringent “insider lending” provisions are established by Regulation O, lending limits of officers and directors of state banks are governed by the provisions of Neb.Rev.Stat. § 8-143.01. The major provisions of this law are as follows:
A. Approval of Insider Loans
No loan may be made to an insider (directors, executive officers, and principal shareholders) and his or her related interests in an aggregate amount in excess of $25,000 or 5% of the banks unimpaired capital and unimpaired surplus, whichever is greater, unless:
1. The extension of credit has been approved in advance by a majority vote of the entire board of directors of the bank, a record of which shall be made and kept as a part of the records of the bank; and
2. The interested party has abstained from participating directly or indirectly in the voting.
In any case, prior approval is required regardless of the bank’s capital and surplus when the aggregate credit extended to the insider and his or her related interests exceeds $500,000. (Note: the former law requiring the prior approval of any loan to an insider, regardless of the amount of the loan and prior approval for loans to any other employee of the bank have been eliminated since July 16, 1994).
B. Loans to Executive Officers
A bank may only extend credit to executive officers in the following amounts and for the following purposes:
1. In any amount (subject to the bank’s loans to a single borrower limit) to finance the education of the executive officer’s children;
2. In any amount (subject to the bank’s loans to a single borrower limit) with respect to the financingorrefinancing of the purchase, maintenance, construction or improvement of the executive officer’s residence, provided that the extension of credit must be secured by a first lien on the residence and the residence is owned or is expected to be owned after the extension of credit by the executive officer and in the case of a refinancing, only the amount used to repay the original extension of credit, together with the closing costs of the refinancing, and any additional amount thereof used for any of the purposes enumerated in this paragraph are included within this category of credit. (Note: A home equity loan will not qualify for this exemption if the loan’s purpose is for anything other than the purchase,, maintenance, construction or improvement of the executive officer’s residence);
3. In any amount if the extension of credit is (i) secured by a perfected security interest in bonds, notes, certificates of indebtedness, or Treasury Bills of the United States or in other such obligations fully guaranteed as to principal and interest by the United States, (ii) secured by unconditional takeout commitments or guarantees of any department, agency, bureau, board, commission, or establishment of the United States or any corporation wholly owned directly or indirectly by the United States, or (iii) secured by a perfected security interest in a segregated deposit account in the lending bank; or
4. For any other purpose not specified in 1, 2 or 3 above, provided the aggregate of such other extensions of credit does not exceed the greater of 2 1/2% of the bank’s unimpaired capital and unimpaired surplus or $25,000, but in no event to be greater than $100,000 or the bank’s lending limit, whichever is less. “Minimal risk” transactions are exempt from the limit of “other purpose” loans to executive officers if fully secured by the following collateral: (1) extensions of credit secured by a perfected security interest in bonds, notes, certificates of indebtedness, or Treasury bills of the United States, or in other such obligations fully guaranteed as to principal and interest by the United States; (2) extensions of credit to or secured by unconditional takeout commitments or guarantees of any department, bureau, board commission or establishment of the United States or any corporation wholly owned directly or indirectly by the United States; or (3) extensions of credit secured by a perfected security interest in a segregated deposit account in the lending bank.
C. Aggregate Loans to an Insider
The aggregate amount of loans which may be made to an insider is limited to the amount of the bank’s lending limit established under Neb.Rev.Stat. § 8-141 (25% of the paid-up capital, surplus and capital notes and debentures of the bank or 15% of the unimpaired capital and unimpaired surplus of such bank, whichever is greater). An additional 10% of the paid-up capital, surplus and capital notes and debentures or 15% of unimpaired the capital and unimpaired surplus, whichever is greater, may be available under the conditions set forth in Neb.Rev.Stat. § 8-141.
D. Executive Officer Loans from Other Financial Institutions
As provided in Neb.Rev.Stat. § 8-143.01, an executive officer must make, on an annual basis, a written report to the board of directors of the bank of which he or she is an executive officer stating the date and amount of all loans or indebtedness on which he or she is a borrower, cosigner or guarantor, the security therefore, and the purpose for which the proceeds have been or are to be used. In lieu of the report described above, the board of directors of a bank may obtain a credit report from a recognized credit agency, on an annual basis, for any or all of its executive officers. In addition, this report is not required for any executive officer if such officer is excluded by a resolution of the board of directors or by the bylaws of the bank from participating in the major policymaking functions of the bank and does not actually participate in the major policymaking functions of the bank.
For purposes of this law, executive officers are defined as persons who participate or have authority to participate, other than in the capacity of a director, in major policy-making decisions of the bank and specifically includes the chairperson of the board, the president, every vice president, the cashier, the corporate secretary and the treasurer. A manager or assistant manager of a branch of a bank shall not be considered to be an executive officer unless such individual participates or is authorized to participate in major policy-making functions of the bank.
Any officer may be omitted from the class of executive officers if the board of directors, by resolution or by the bylaws of the bank, exclude such officer from participating, other than in the capacity of a director, in major policy-making functions of the bank and the officer does not actually participate in such functions.
E. Definitions
For the purposes of Section 8-143.01, the following items are defined:
1. Executive Officer – A person who participates or has authority to participate, other than in the capacity of director, in the major policymaking functions of the bank, whether or not the officer has an official title, the title designates such officer as an assistant, or such officer is serving without salary or other compensation. Executive officer shall include the chairperson of the board of directors, the president, all vice presidents, the cashier, the corporate secretary, and the treasurer, unless the executive officer is excluded by a resolution of the board of directors or by the bylaws of the bank from participating, other than in the capacity of director, in the major policymaking functions of the bank, and the executive officer does not actually participate in such functions. A manager or assistant manager of a branch of a bank shall not be considered to be an executive officer unless such individual participates or is authorized to participate in the major policymaking functions of the bank; and
2. Unimpaired Capital and Unimpaired Surplus – The sum of: (a) the total equity capital of the bank reported on its most recent consolidated report of condition filed under Section 8-166; (b) any subordinated notes and debentures approved as an addition to the bank’s capital structure by the appropriate federal banking agency; and (c) any valuation reserves created by charges to the bank’s income reported on its most recent consolidated report of condition filed under Section 8-166.