Current through Register Vol. XLI, No. 50, December 13, 2024
Section 106-9-6 - Exceptions to the Lending Limits6.1. Discount of commercial or business paper. -- W. Va. Code '31-4-26(a)(4)(A) provides that loans or extensions of credit arising from the discount of commercial or business paper evidencing an obligation to the person negotiating it with recourse are not subject to any limitation based on capital and surplus. (a) This exception applies to negotiable paper given in payment of the purchase price of commodities in domestic or export transactions purchased for resale or to be used in connection with the fabrication of a product or to be used for any other business purpose which may reasonably be expected to provide funds for payment of the paper. Loans or extensions of credit arising from the discount of paper of the kind described in this subsection shall bear the full recourse endorsement of the owner. However, loans or extensions of credit arising from the discount of the paper in export transactions may be endorsed by the owner without recourse or with limited recourse, or may be accompanied by a separate agreement for limited recourse: Provided, that if transferred without full recourse, the paper shall be supported by an assignment of appropriate insurance covering the political, credit and transfer risks applicable to the paper. Insurance provided by the Export-Import Bank or the Foreign Credit Insurance Association is considered appropriate for this purpose. Loans or extensions of credit based on this exception are not subject to any limitation.(b) Since the reason for the unlimited credit under this exception is that the paper arises from the sale of a commodity which may reasonably be expected to provide funds for payment of the paper, a borrower's failure to pay either principal or interest when due removes the reason for unlimited credit. Therefore, although the line of credit to the maker or endorser should not be classified as excessive by reasons of the default, the paper on which the default has occurred shall thereafter be taken into consideration in determining whether additional loans or extensions of credit may be made within the limits of W. Va. Code '31A-4-26(a). The same principles of disqualification from the exception apply to any renewal or extension of either the entire loan or an installment of the loan.6.2. Bankers' acceptances. -- W. Va. Code '31A-4-26(a)(4)(B) provides that the purchase of bankers' acceptances of the kind described in section thirteen of the Federal Reserve Act and issued by other banks are not subject to any limitation based on capital and surplus. (a) This exception permits the purchase by a state-chartered banking institution without limitation of bankers' acceptances created by other banks: Provided, that the acceptances are of the kind described in 12 U.S.C. '372 (eligible acceptances). Acceptances other than those described in 12 U.S.C. '372 shall be included within the purchasing state-chartered banking institution's lending limit to each acceptor bank.(b) The limits under which a state-chartered banking institution may itself accept drafts eligible for rediscount are contained in 12 U.S.C. '372. These limits are distinct from the limits under W. Va. Code '31A-4-26(a). Acceptances by a bank of "Ineligible" drafts, i.e., time drafts which do not meet the requirements for discount with a Federal Reserve Bank, are subject to the limitations of W. Va. Code '31A-4-26(a).(c) A state-chartered banking institution may hold its own acceptance, which for purposes of this rule, is to be considered a loan or extension of credit to the customer for whom the acceptance was made and is subject to the lending limits. To the extent that a loan or extension of credit created by discounting the acceptance is covered by a bona fide participation agreement, the discounting bank need only consider that portion of the discounted acceptance which it retains as being subject to the limitations of W. Va. Code '31A-4-26(a).6.3. Loans secured by bills of lading or warehouse receipts covering readily marketable staples. (a) The total loans and extensions of credit made by a state chartered banking institution to any one person or common enterprise may exceed fifteen percent (15%) of the unimpaired capital and unimpaired surplus of that state chartered banking institution at the time the loans or extensions of credit are made if they are fully secured by bills of lading or other documents giving a lien on readily marketable staples, as determined in a manner consistent with subdivision 6.3(b) of this rule, notwithstanding the collateral requirements in subsection 3.2 of this rule.(b) 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 bills of lading or other documents giving a lien on readily marketable staples, the market value of which at all times equals or exceeds one hundred fifteen percent (115%) of the outstanding amount of the loans or extensions of credit, the bank may provide the loans or extensions of up to twenty percent (20%) of the unimpaired capital and unimpaired surplus of that state chartered banking institution. This limitation is in addition to the limitation contained in subsection 3.1 of this rule. Thus, the total amount allowed under this provision may not exceed thirty-five percent (35%) of a bank's unimpaired capital and unimpaired surplus.(c) The maximum term of a loan or extension of credit extended under subdivision 6.3(b) of this rule shall be ten (10) months.(d) Staples eligible for this exception shall be nonperishable and shall be fully covered by insurance when insurance is customary. This exception is intended to apply primarily to basic commodities, such as wheat and other grains, cotton, wool, and basic metals such as tin, copper, lead and the like. Whether a commodity is readily marketable depends upon existing conditions and it is possible that a commodity that qualifies at one time may cease to qualify at a later date. Fabricated commodities, which do not constitute standardized interchangeable units and do not possess uniformly broad marketability, do not qualify as readily marketable staples.(e) Commodities sometimes fail to qualify as nonperishable because of the manner in which they are handled or stored during the life of the loan or extension of credit. Accordingly, the lending bank shall determine the question as to whether a staple is nonperishable on a case-by-case basis.(f) The important characteristic of warehouse receipts, order bills of lading or other similar documents is that the holder of the documents has control of the commodity and can obtain immediate possession. However, the existence of brief notice periods or similar procedural requirements under state law, for the disposal of the collateral shall not affect the eligibility of instruments for this exception. Only documents with these characteristics are eligible security for loans under this exception. In the event of default on a loan secured by these documents, the bank must be in a position to sell the underlying commodity and promptly transfer title and possession to the purchaser, thus being able to protect itself without extended litigation. Generally, documents of title qualifying under the Uniform Commercial Code [W. Va. Code '46-1-201] are similar documents qualifying for this exception.(g) Field warehouse receipts are an acceptable form of collateral when they are issued by a duly bonded and licensed grain elevator or warehouse having exclusive possession and control of the commodities even though the grain elevator or warehouse is maintained on the commodity owner's premises.(h) Warehouse receipts issued by the borrower-owner which is a grain elevator or warehouse company, duly bonded and licensed and regularly inspected by state and federal authorities, may be considered eligible collateral under this exception only when the receipts are registered with an independent registrar whose consent is required before the commodities can be withdrawn from the warehouse.(i) If collateral values fall below the levels required by subdivision 6.3(b) of this rule, to the extent that a loan is no longer in conformance with the collateral requirements and exceeds the general fifteen percent (15%) limitation, the bank shall bring the loan into conformance within five (5) business days, except where judicial proceedings, regulatory actions or other extraordinary occurrences prevent the bank from taking action.6.4. Loans secured by obligations of the United States and West Virginia. W. Va. Code '31A-4-26(a)(4)(D) provides that loans or extensions of credit secured by bonds, notes, certificates of indebtedness or treasury bills of the United States or by other 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 obligations fully guaranteed as to principal and interest by the state of West Virginia are not subject to any limitation based on capital and surplus.(a) This exception applies only to the extent that loans or extensions of credit are fully secured by the current market value of obligations of the United States or the state of West Virginia or guaranteed by the United States or the state of West Virginia.(b) If the market value of the collateral declines to the extent that the loan is no longer in conformance with this exception and exceeds the general fifteen percent (15%) limitation, the bank shall bring the loan into conformance within five (5) business days.6.5. Loans to or guaranteed by a federal agency or the state of West Virginia. W. Va. Code '31A-4-26(a)(4)(E) provides that 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 are not subject to any limitation based on capital and surplus. (a) This exception may apply to only that portion of a loan or extension of credit that is covered by a federal government or state of West Virginia guarantee or commitment.(b) For purposes of this exception, the commitment or guarantee shall be payable to cash or its equivalent within sixty (60) days after demand for payment is made.(c) A guarantee or commitment is unconditional if the protection afforded the bank is not substantially diminished or impaired in the case of loss resulting from factors beyond the bank's control. Protection against loss is not materially diminished or impaired by procedural requirements, such as an agreement to take over only in the event of default, including default over a specific period of time, a requirement that notification of default be given within a specific period after its occurrence, or a requirement of good faith on the part of the bank.6.6. Loans secured by segregated deposit accounts W. Va. Code '31A-4-26(a)(4)(F) provides that loans or extensions of credit secured by a segregated deposit account in the lending bank are not subject to any limitation based on capital and surplus. (a) The lending bank shall ensure that a security interest has been perfected in the deposit, including the assignment of a specifically identified deposit and any other actions required by state law.(b) Deposit accounts that qualify for this exception include deposits in any form generally recognized as deposits. In the case of a deposit eligible for withdrawal prior to the maturity of the secured loan, the bank shall establish internal procedures that prevent the release of the security.(c) A deposit which is denominated and payable in a currency other than that of a loan or extension of credit which it secures may be eligible for this exception if it is freely convertible to United States dollars. The bank shall revalue the deposit at least monthly, using appropriate foreign exchange rates to ensure that the loan or extension of credit remains fully secured. This exception applies to only that portion of the loan or extension of credit that is covered by the United States dollar value of the deposit. If the United States dollar value of the deposit falls to the extent that the loan is in nonconformance with this exception and exceeds the general fifteen percent (15%) limitation, the bank shall bring the loan into conformance within five (5) business days, except where judicial proceedings, regulatory actions or other extraordinary occurrences prevent the bank from taking such action. This exception is not authority for state-chartered banking institutions to take deposits denominated in foreign currencies.6.7. Loans to depository institutions with the approval of the Commissioner. W. Va. Code '31A-4-26(a)(4)(G) provides that 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, are not subject to any limitation based on capital and surplus. (a) This exception is intended to apply only in emergency situations where a state-chartered banking institution is called upon to provide assistance to another depository institution.(b) For purposes of this subsection, a depository institution means a commercial bank, savings bank, trust company, savings association or credit union.6.8. Discount of installment consumer paper. (a) Loans and extensions of credit arising from the discount of negotiable or nonnegotiable installment consumer paper that carries a full recourse endorsement or unconditional guarantee of any one person or common enterprise transferring the paper are subject to a maximum limitation equal to twenty-five percent (25%) of the bank's unimpaired capital and unimpaired surplus, provided the state-chartered banking institution has assessed the financial capacity of the endorser or guarantor upon which it is relying.(b) The unconditional guarantee may be in the form of a repurchase agreement or a separate guarantee agreement. A condition reasonably within the power of the bank to perform, such as the repossession of collateral, shall not be considered to make conditional an otherwise unconditional agreement.(i) For purposes of this section of the rule only, "Consumer" means the user of any products, commodities, goods, or services, whether leased or purchased, and does not include any person who purchases products or commodities for the purpose of resale or for fabrication into goods for sale.(ii) For purposes of this section of the rule only, "Consumer Paper" includes paper relating to automobiles, mobile homes, residences, office equipment, household items, tuition fees, insurance premium fees and similar consumer items. Also included is paper covering the lease (where the bank is not the owner or lessor) or purchase of equipment for use in manufacturing, farming, construction or excavation.(c) Under certain circumstances, installment consumer paper which otherwise meets the requirements of this section shall be considered a loan or extension of credit to the maker of the paper rather than the seller of the paper even though it carries a full recourse endorsement or unconditional guarantee. Specifically, where (A) through a review of the bank's files it has been determined that the financial condition of each maker is reasonably adequate to repay the loan or extension of credit and (B) an officer designated by the bank's Chairman or Chief Executive Officer pursuant to authorization by the board of directors certifies in writing that the bank is relying primarily upon the maker to repay the loan or extension of credit, the loan or extension of credit is subject only to the lending limits of the maker of the paper. Where paper is purchased in substantial quantities, the records, evaluation and certification may be in such form as is appropriate for the class and quantity of paper involved. The bank may use sampling techniques, or other appropriate methods, to independently verify the reliability of the credit information supplied by the seller.6.9. Loans and extensions of credit secured by livestock. (a) The total loans and extensions of credit made by a state-chartered banking institution to any one person or common enterprise may exceed fifteen percent (15%) of the unimpaired capital and unimpaired surplus of that state-chartered banking institution at the time the loans or extensions of credit are made if they are fully secured by documents or instruments securing title or giving a lien on livestock, as determined in a manner consistent with subdivision 6.9(b) of this rule.(b) 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: (i) shipping documents or instruments transferring or securing title covering livestock or giving a first lien on livestock when the market value of the livestock securing the obligation is not at any time less than one hundred fifteen percent (115%) of the face amount of the obligation; or, (ii) discounted paper given in payment for livestock by dealers, which carries a full recourse endorsement or unconditional guarantee of the seller, and which is secured by a first lien on the livestock being sold when the market value of the livestock securing the obligation is not at any time less than one hundred percent (100%) of the face amount of the obligation; then the bank may provide those loans or extensions of credit of up to an additional ten percent (10%) of the unimpaired capital and unimpaired surplus of that state-chartered banking institution calculated at the time that loan or extension is made. This limitation is separate from and in addition to the limitation contained in subsection 3.1 of this rule.(c) "Livestock" as the term is used in this subsection, includes dairy and beef cattle, hogs, sheep, goats, horses, mules, poultry and fish, whether or not they are held for resale.(d) Banks shall maintain in their files an inspection and valuation report on the livestock pledged, in order to demonstrate compliance with this section. The inspection and valuation report should be performed at least every twelve (12) months or more frequently as considered prudent.(e) Liens on the livestock shall be in a form that allows the bank to maintain a perfected security interest in the livestock under applicable state law.(f) If collateral values fall below the levels required by subdivision 6.9(b) of this rule, to the extent that the loan is no longer in conformance with the collateral requirements and exceeds the general fifteen percent (15%) limitation, the bank shall bring the loan into conformance within thirty (30) business days, except where judicial proceedings, regulatory actions or other extraordinary occurrences prevent the bank from taking action.6.10. Loans to Student Loan Marketing Association. W. Va. Code '31A-4-26(a)(4)(J) provides that loans or extensions of credit to the Student Loan Marketing Association are not subject to any limitation based on capital and surplus.6.11. Loans to a person owning the property in which that state-chartered banking institution is located. W. Va. Code '31A-4-26(a)(4)(K) provides that loans or extensions of credit to a person 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 ($1,000,000) or when approved in writing by the commissioner of banking, are not subject to any limitation based on capital and surplus. This exception is intended for "Persons" (as defined in subsection 2.4 of this rule) who own real property and lease fifty-one percent (51%) or more of the useable space to a state-chartered banking institution for use as either a main office or branch office, or other operations of a bank, and through its lease payments, the state-chartered banking institution provides, or is capable of providing, one hundred percent (100%) of the debt service on the loan or extension of credit.