On June 29, 2017, the Georgia Department of Banking and Finance (DBF) issued the final rule on previously proposed changes regarding calculation of the legal lending limit and statutory capital base for state chartered banks.
Defining the changes
Prior to June 1, 2017, statutory capital base was defined as the “sum of the capital stock, paid-in-capital, appropriated retained earnings, and capital debt of a bank or trust company less any amount of goodwill, core deposit intangibles, or any other intangible assets related to the purchase, acquisition, or merger of a bank charter or accumulated deficit (negative retained earnings).” As of June 1, the statutory capital base is redefined as “common equity tier 1 capital, as defined by applicable federal law, and the allowance for loan and lease losses (ALLL), as defined by applicable federal law, as reported in the bank’s most recent Consolidated Report of Condition and Income.” In the event the statutory capital base experiences a change of 5% or more subsequent to the report date, the bank must immediately recalculate its legal lending limit.
Calculation of the legal lending limit
The calculation of the limit remains the same, at 15% of the statutory capital base for unsecured loans, with an additional 10% allowed for those loans that are fully secured.
Effect on community banks in Georgia
In some cases, banks may find that the updated calculation results in a decreased statutory capital base. In the event this occurs, the Georgia DBF has implemented a waiver process for affected entities. Any institution requesting a waiver from the updated calculation of statutory capital base must file the request no later than August 1 of each year. These waivers are considered to expire on August 31 of each year, and must be refiled annually. The Department is authorized to impose restrictive conditions with the approval of a waiver request.
In many cases, banks will see an increased legal lending limit based on the new definition of statutory capital basis. However, as mentioned above, the State DBF has implemented a waiver process for entities with a reduced limit. At this time, the waiver process will continue indefinitely and does not have a prescribed sunset date.
For more information about this and other changes in the banking industry, please contact us