I. INTRODUCTION
Effective June 7, 2007, some national banks gained the opportunity to increase their one-borrower loan limit. Currently, national banks may lend up to 15% of unimpaired capital and surplus on an unsecured basis to a single borrower, and may loan an additional 10% if the amount that exceeds the 15% limit is secured by readily marketable collateral (combined general limit). Many states allow higher lending limits for the banks they charter. To level the playing field for national banks in states with more favorable lending limits, the Office of the Comptroller of the Currency (OCC) has made permanent the prior pilot program allowing certain national banks to make residential loans, small-business loans and small farm loans up to the lesser of the state lending limit, or 25% of capital and surplus.
II. ELIGIBILITY REQUIREMENTS
The OCC interim final rule requires that a bank be well-capitalized. In addition to being well-capitalized, the eligible banks must have a 1 or 2 composite rating under the Uniform Financial Institution Rating System. A bank’s asset quality and management components of the rating system must be rated at least 2
To participate in the program, national banks must file an application with and receive approval from their OCC office. The bank application must certify that the bank is eligible and cite the state lending limit law for the state in which the bank has its main office. The application must also include a written resolution by the majority of the bank’s board of directors approving the use of the increased limits, confirming the terms and conditions and describing how the board will oversee the use of the lending authority.
A bank that has received prior OCC approval may continue to make loans under the special lending limits as long as the bank remains an “eligible bank.” The OCC may rescind a bank’s authority to use the special lending limits if it has concerns about credit quality, undue concentrations in the bank’s portfolio of loans in the three special categories or concerns about the bank’s overall credit risk management systems and controls.
III. ADDITIONAL LENDING LIMITS UNDER THE PROGRAM
Three types of loans qualify for additional lending limits under the OCC interim final rule. First, certain small business loans qualify. (A small business loan is a loan “secured by non-farm, non-residential properties” or a “commercial and industrial loan” as those terms are described in the current Call Report.) Second, residential real estate loans will qualify if they have a perfected first-lien security interest in 1-4 family real estate in the amount that does not exceed 80% of the appraised value of the collateral at the time the loan is made. Finally, certain farm loans also qualify “loans secured by farmland” and “loans to finance agricultural production and other loans to farmers.”
The OCC interim final rule allows eligible national banks to lend an additional 10% of capital and surplus, or the percent of its capital and surplus in excess of 15% that a state bank is permitted to lend under the state lending limit, which ever is less. The total amount of loans under the program may not exceed 100% of capital and surplus.
IV. STATE BANK LENDING LIMITS
The provisions of § 8-143.01 limit loans to a single borrower to 25% of the paid-up capital, surplus, and capital notes and debentures or 15% of the unimpaired surplus of such bank, whichever is greater. Because the computation for an individual bank may provide a greater lending limit to a single borrower under state law than that which is otherwise applicable under federal law, national banks may be able to make additional loans to a single borrower under the lending limit program. While the national bank lending limit under federal law is based upon a percentage of “unimpaired capital and unimpaired surplus,” and the alternative state bank lending limit is based on a percentage of “paid-up-capital, surplus, and capital notes and debentures,” the OCC has indicated that the additional lending authority available to qualifying national banks under the program will be based upon the standard of 25% of the “unimpaired capital and unimpaired surplus” of the bank.
V. CONCLUSION
The OCC interim final rule will allow certain national banks with their main office in Nebraska to apply for an increased lending limit similar to that enjoyed by state banks.