Chapter 1301:1-3 Lending Limits and Standards

1301:1-3-01 Lending limits.

(A) As used in this rule:

(1) "Borrower" means a person who is named as a borrower or debtor in a loan or extension of credit, or any other person, including a drawer, endorser, or guarantor, who is deemed to be a borrower under the "direct benefit" or the "common enterprise" tests set forth in paragraph (D) of this rule.

(2) "Capital" has the same meaning as in rule 1301:1-2-01 of the Administrative Code.

(3) "Close of business" means the time at which a bank closes its accounting records for the business day.

(4) "Consumer" means the user of any products, commodities, goods or services, whether leased or purchased, but does not include any person who purchases products or commodities for resale or fabrication into goods for sale.

(5) "Consumer paper" means paper relating to automobiles, mobile homes, residences, office equipment, household items, tuition fees, insurance premium fees, and similar consumer items. Consumer paper also includes 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.

(6)

(a) "Contractual commitment to advance funds" includes a bank's obligation to do any of the following:

(i) A bank's obligation to make payment, directly or indirectly, to a third person contingent upon default by a customer of the bank in performing an obligation in keeping with the agreed upon terms of the customer's contract with the third person, or to make payments upon some other stated condition;

(ii) A bank's obligation to guarantee or act as surety for the benefit of a person;

(iii) A bank's obligation to advance funds under a qualifying commitment to lend, as defined in paragraph (A)(12) of this rule;

(iv) A bank's obligation to advance funds under a standby letter of credit as defined in paragraph (A)(16) of this rule, a put, or other similar arrangement.

(b) "Contractual commitment to advance funds" does not include commercial letters of credit and similar instruments where the issuing bank expects the beneficiary to draw on the issuer, that do not guarantee payment, and that do not provide for payment in the event of a default by a third party.

(7) "Control" is presumed to exist when, directly or indirectly or acting through or together with one or more persons, any of the following occurs:

(a) A person owns, controls, or has the power to vote twenty-five per cent or more of any class of voting securities of another person;

(b) A person controls, in any manner, the election of a majority of the directors, trustees, or other persons exercising similar functions of another person;

(c) A person has the power to exercise a controlling influence over the management or policies of another person.

(8) "Current market value" means the bid or closing price listed for an item in a regularly published listing or an electronic reporting service.

(9) "Financial instrument" means stocks, notes, bonds, and debentures traded on a national securities exchange, over-the-counter margin stocks as defined in 12 C.F.R. 221 (regulation U), commercial paper, negotiable certificates of deposit, bankers' acceptances, and shares in money market and mutual funds of the type that issue shares in which banks may perfect a security interest. Financial instruments may be denominated in foreign currencies that are freely convertible to United States dollars. The term "financial instrument" does not include mortgages.

(10) "Loans and extensions of credit" means a bank's direct or indirect advance of funds to or on behalf of a borrower based on an obligation of the borrower to repay the funds or repayable from specific property pledged by or on behalf of the borrower.

(a) Loans or extensions of credit for purposes of section 1109.22 of the Revised Code and this rule include any of the following:

(i) A contractual commitment to advance funds, as defined in paragraph (A)(6) of this rule;

(ii) A maker's or endorser's obligation arising from a bank's discount of commercial paper;

(iii) A bank's purchase of securities subject to an agreement that the seller will repurchase the securities at the end of a stated period, but not including a bank's purchase of securities that are both of the following:

(a) Securities that are any of the following:

(i) Securities a bank may invest in pursuant to divisions (A)(1) to (A)(4) of section 1109.32 of the Revised Code;

(ii) Securities a bank may underwrite and deal in pursuant to section 1109.36 of the Revised Code;

(iii) Other securities the superintendent of financial institutions determines to be eligible;

(b) Subject to a repurchase agreement, where the purchasing bank has assured control over or has established its rights to the securities as collateral;

(iv) A bank's purchase of third-party paper subject to an agreement that the seller will repurchase the paper upon default or at the end of a stated period. The amount of the bank's loan is the total unpaid balance of the paper owned by the bank less any applicable dealer reserves retained by the bank and held by the bank as collateral security. Where the seller's obligation to repurchase is limited, the bank's loan is measured by the total amount of the paper the seller may ultimately be obligated to repurchase. A bank's purchase of third party paper without direct or indirect recourse to the seller is not a loan or extension of credit to the seller;

(v) An overdraft, whether or not pre-arranged, but not an intra-day overdraft for which payment is received before the close of business of the bank that makes the funds available;

(vi) The sale of federal funds with a maturity of more than one business day, but not federal funds with a maturity of one day or less or federal funds sold under a continuing contract;

(vii) Loans or extensions of credit that have been charged off on the books of the bank in whole or in part, unless the loan or extension of credit is any of the following:

(a) Is unenforceable by reason of discharge in bankruptcy;

(b) Is no longer legally enforceable because of expiration of the statute of limitations or a judicial decision;

(c) Is no longer legally enforceable for other reasons, provided that the bank maintains sufficient records to demonstrate that the loan is unenforceable.

(b) The following items do not constitute loans or extensions of credit for purposes of section 1109.22 of the Revised Code and this rule:

(i) Additional funds advanced for the benefit of a borrower by a bank for payment of taxes, insurance, utilities, security, and maintenance and operating expenses necessary to preserve the value of real or personal property securing the loan, consistent with safe and sound banking practices, but only if the advance is for the protection of the bank's interest in the collateral, and provided that the amounts advanced must be treated as an extension of credit if a new loan or extension of credit is made to the borrower;

(ii) Accrued and discounted interest on an existing loan or extension of credit, including interest that has been capitalized from prior notes and interest that has been advanced under terms and conditions of a loan agreement;

(iii) Financed sales of a bank's own assets, including other real estate owned, if the financing does not put the bank in a worse position than when the bank held title to the assets;

(iv) A renewal or restructuring of a loan as a new loan or extension of credit, following the exercise by a bank of reasonable efforts, consistent with safe and sound banking practices, to bring the loan into conformance with the lending limit, unless any of the following apply:

(a) New funds are advanced by the bank to the borrower, except as permitted by paragraph (B)(2)(e) of this rule;

(b) A new borrower replaced the original borrower;

(c) The superintendent determines that a renewal or restructuring was undertaken as a means to evade the bank's lending limit;

(v) Amounts paid against uncollected funds in the normal process of collection;

(vi)

(a) That portion of a loan or extension of credit sold as a participation by a bank on a non-recourse basis, provided that the participation results in a pro rata sharing of credit risk proportionate to the respective interests of the originating and participating lenders. Where a participation agreement provides that repayment must be applied first to the portions sold, a pro rata sharing will be deemed to exist only if the agreement also provides that, in the event of a default or comparable event defined in the agreement, participants must share in all subsequent repayments and collections in proportion to their percentage participation at the time of the occurrence of the event.

(b) When an originating bank funds the entire loan, it must receive funding from the participants before the close of business of its next business day. If the participating portions are not received within that period, then the portions funded will be treated as a loan by the originating bank to the borrower. If the portions so attributed to the borrower exceed the originating bank's lending limit, the loan may be treated as nonconforming subject to paragraph (E) of this rule, rather than a violation, if all of the following apply:

(i) The originating bank had a valid and unconditional participation agreement with a participating bank or banks that was sufficient to reduce the loan to within the originating bank's lending limit;

(ii) The participating bank reconfirmed its participation and the originating bank had no knowledge of any information that would permit the participant to withhold its participation;

(iii) The participation was to be funded by close of business of the originating bank's next business day.

(11) "Person" means an individual; sole proprietorship; partnership; joint venture; association; trust; estate; business trust; corporation; limited liability company; not-for-profit corporation; sovereign government or agency, instrumentality, or political subdivision of a sovereign government; or any similar entity or organization.

(12) "Qualifying commitment to lend" means a legally binding written commitment to lend that, when combined with all other outstanding loans and qualifying commitments to a borrower, was within the bank's lending limit when entered into, and has not been disqualified.

(a) In determining whether a commitment is within the bank's lending limit when made, the bank may deduct from the amount of the commitment the amount of any legally binding loan participation commitments that are issued concurrent with the bank's commitment and that would be excluded from the definition of loan or extension of credit under paragraph (A)(10)(b)(vi) of this rule.

(b) If the bank subsequently chooses to make an additional loan and that subsequent loan, together with all outstanding loans and qualifying commitments to a borrower, exceeds the bank's applicable lending limit at that time, the bank's qualifying commitments to the borrower that exceed the bank's lending limit at that time are deemed to be permanently disqualified, beginning with the most recent qualifying commitment and proceeding in reverse chronological order. When a commitment is disqualified, the entire commitment is disqualified and the disqualified commitment is no longer considered a loan or extension of credit. Advances of funds under a disqualified or non-qualifying commitment may only be made to the extent that the advance, together with all other outstanding loans to the borrower, do not exceed the bank's lending limit at the time of the advance, calculated pursuant to paragraph (C) of this rule.

(13) "Readily marketable collateral" means financial instruments and bullion that are salable under ordinary market conditions with reasonable promptness at a fair market value determined by quotations based upon actual transactions on an auction or similarly available daily bid and ask price market.

(14) "Readily marketable staple" means an article of commerce, agriculture, or industry, such as wheat and other grains, cotton, wool, and basic metals such as tin, copper, and lead, in the form of standardized interchangeable units, that is easy to sell in a market with sufficiently frequent price quotations.

(a) An article comes within this definition if both of the following apply:

(i) The exact price is easy to determine;

(ii) The staple itself is easy to sell at any time at a price that would not be considerably less than the amount at which it is valued as collateral.

(b) Whether an article qualifies as a readily marketable staple is determined on the basis of the conditions existing at the time the loan or extension of credit that is secured by the staple is made.

(15) "Sale of federal funds" means any transaction between depository institutions involving the transfer of immediately available funds resulting from credits to deposit balances at federal reserve banks, or from credits to new or existing deposit balances due from a correspondent depository institution.

(16) "Standby letter of credit" means any letter of credit, or similar arrangement, that represents an obligation to the beneficiary on the part of the issuer to do any of the following:

(a) To repay money borrowed by or advanced to or for the account of the account party;

(b) To make payment on account of any indebtedness undertaken by the account party;

(c) To make payment on account of any default by the account party in the performance of an obligation.

(B) Subject to paragraphs (D) and (E) of this rule, the following apply to a bank's outstanding loans or extensions of credit to any one borrower:

(1) Generally a bank's total outstanding loans and extensions of credit to one borrower may not exceed fifteen per cent of the bank's capital, plus an additional ten per cent of the bank's capital, if the amount that exceeds the bank's fifteen per cent general limit is fully secured by readily marketable collateral, as defined in paragraph (A)(13) of this rule. This is a bank's "combined general limit." To qualify for the additional ten per cent limit, the bank must perfect a security interest in the collateral under applicable law, and the collateral must have a current market value at all times of at least one hundred per cent of the amount of the loan or extension of credit that exceeds the bank's fifteen per cent general limit.

(2) The following loans or extensions of credit are subject to the special lending limits indicated, and, in the case of loans and extensions of credit that qualify for more than one special lending limit, the special limits are cumulative:

(a) A bank's loans or extensions of credit to one borrower secured by bills of lading, warehouse receipts, or similar documents transferring or securing title to readily marketable staples, as defined in paragraph (A)(14) of this rule, may not exceed thirty-five per cent of the bank's capital in addition to the amount allowed under the bank's combined general limit, and then only if all of the following conditions are met:

(i) The market value of the staples securing the loan must at all times equal at least one hundred fifteen per cent of the amount of the outstanding loan that exceeds the bank's combined general limit.

(ii) Staples that qualify for this special limit must be nonperishable or, when appropriate, may be refrigerated or frozen, and must be fully covered by any insurance that is customary. Whether a staple is non-perishable must be determined on a case-by-case basis because of differences in handling and storing commodities.

(iii) The loan or extension of credit arises from a single transaction or is secured by the same staples, provided that the duration of the loan or extension of credit is:

(a) Not more than ten months if secured by nonperishable staples;

(b) Not more than six months if secured by refrigerated or frozen staples.

(iv) The holder of the warehouse receipts, order bills of lading, documents qualifying as documents of title under the uniform commercial code, or other similar documents, must have control and be able to obtain immediate possession of the staple so that the bank is able to sell the underlying staples and promptly transfer title and possession to a purchaser if default should occur on a loan secured by such documents. The existence of a brief notice period, or similar procedural requirements under applicable law, for the disposal of the collateral will not affect the eligibility of the instruments for this special limit.

(a) Field warehouse receipts are an acceptable form of collateral when issued by a duly bonded and licensed grain elevator or warehouse having exclusive possession and control of the staples even though the grain elevator or warehouse is maintained on the premises of the owner of the staples.

(b) Warehouse receipts issued by the borrower-owner that is a grain elevator or warehouse company, duly-bonded and licensed and regularly inspected by state or federal authorities, may be considered eligible collateral under this provision only when the receipts are registered with an independent registrar whose consent is required before the staples may be withdrawn from the warehouse.

(b) A bank's loans and extensions of credit to one borrower that arise from the discount of negotiable or nonnegotiable installment consumer paper, as defined in paragraph (A)(5) of this rule, that carries a full recourse endorsement or unconditional guarantee by the person selling the paper, may not exceed ten per cent of the bank's capital in addition to the amount allowed under the bank's combined general limit and only if consistent with all of the following that apply:

(i) An unconditional guarantee may be in the form of a repurchase agreement or separate guarantee agreement. A condition reasonably within the power of the bank to perform, such as the repossession of collateral, will not make conditional an otherwise unconditional guarantee.

(ii) Where the seller of the paper offers only partial recourse to the bank, the lending limits of this rule apply to the obligation of the seller to the bank, which is measured by the total amount of paper the seller may be obligated to repurchase or has guaranteed.

(iii) Where the bank is relying primarily on the maker of the paper for payment of the loans or extensions of credit and not on any full or partial recourse endorsement or guarantee by the seller of the paper, the lending limits of this rule apply only to the maker. The bank must substantiate its reliance on the maker with both of the following:

(a) Records supporting the bank's independent credit analysis of the maker's ability to repay the loan or extension of credit, maintained by the bank or by a third party that is contractually obligated to make those records available for examination purposes;

(b) A written certification by an officer of the bank authorized by the bank's board of directors or any designee of that officer, that the bank is relying primarily upon the maker to repay the loan or extension of credit.

(iv) Where paper is purchased in substantial quantities, the records, evaluation, and certification must be in a form appropriate for the class and quality 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.

(c) A bank's loans or extensions of credit to one borrower secured by shipping documents or instruments that transfer or secure title to or give a first lien on livestock may not exceed ten per cent of the bank's capital in addition to the amount allowed under the bank's combined general limit, and only if all of the following conditions that apply are met:

(i) The market value of the livestock securing the loan must at all times equal at least one hundred fifteen per cent of the amount of the outstanding loan that exceeds the bank's combined general limit. For purposes of paragraph (B)(2)(c) of this rule, the term livestock includes dairy and beef cattle, hogs, sheep, goats, horses, mules, poultry and fish, whether or not held for resale.

(ii) The bank must maintain in its files an inspection and valuation for the livestock pledged that is reasonably current, taking into account the nature and frequency of turnover of the livestock to which the documents relate, but in any case not more than twelve months old.

(iii) Under the laws of certain states, persons furnishing pasturage under a grazing contract may have a lien on the livestock for the amount due for pasturage. If a lien that is based on pasturage furnished by the lien or prior to the bank's loan or extension of credit is assigned to the bank by a recordable instrument and protected against being defeated by some other lien or claim, by payment to a person other than the bank, or otherwise, it will qualify under this exception provided the amount of the perfected lien is at least equal to the amount of the loan and the value of the livestock is at no time less than one hundred fifteen per cent of the portion of the loan or extension of credit that exceeds the bank's combined general limit. When the amount due under the grazing contract is dependent upon future performance, the resulting lien does not meet the requirements of the exception.

(d) A bank's loans and extensions of credit to one borrower that arise from the discount by dealers in dairy cattle of paper given in payment for the cattle may not exceed ten per cent of the bank's capital in addition to the amount allowed under the bank's combined general limit, and only if both of the following conditions are met:

(i) The paper carries the full recourse endorsement or unconditional guarantee of the seller.

(ii) The paper is secured by the cattle being sold, pursuant to liens that allow the bank to maintain a perfected security interest in the cattle under applicable law.

(e) A bank may renew a qualifying commitment to lend, as defined in paragraph (A)(12) of this rule, and complete funding under that commitment if all of the following criteria are met:

(i) The completion of funding is consistent with safe and sound banking practices and is made to protect the position of the bank.

(ii) The completion of funding will enable the borrower to complete the project for which the qualifying commitment to lend was made.

(iii) The amount of the additional funding does not exceed the unfunded portion of the bank's qualifying commitment to lend.

(3) The following loans or extensions of credit are not subject to the lending limits of section 1109.22 of the Revised Code or this rule:

(a) Loans or extensions of credit arising from the discount of negotiable commercial or business paper that evidences an obligation to the person negotiating the paper, if both of the following conditions are met:

(i) The paper is given in payment of the purchase price of commodities purchased for resale, fabrication of a product, or any other business purpose that may reasonably be expected to provide funds for payment of the paper;

(ii) The paper bears the full recourse endorsement of the owner of the paper, except that paper discounted in connection with export transactions, that is transferred without recourse, or with limited recourse, must be supported by an assignment of appropriate insurance covering the political, credit, and transfer risks applicable to the paper, such as insurance provided by the export-import bank. A failure to pay principal or interest on commercial or business paper when due does not result in a loan or extension of credit to the maker or endorser of the paper; however, the amount of the paper thereafter must be counted in determining whether additional loans or extensions of credit to the same borrower may be made within the limits of section 1109.22 of the Revised Code and this rule.

(b) A bank's acceptance of drafts eligible for rediscount under divisions (B) and (C) of section 1109.17 of the Revised Code, or a bank's purchase of acceptances created by other banks that are eligible for rediscount under those sections; other than all of the following:

(i) A bank's acceptance of drafts ineligible for rediscount, which constitutes a loan by the bank to the customer for whom the acceptance was made, in the amount of the draft;

(ii) A bank's purchase of ineligible acceptances created by other bank's, which constitutes a loan from the purchasing bank to the accepting bank, in the amount of the purchase price;

(iii) A bank's purchase of its own acceptances, which constitutes a loan to the bank's customer for whom the acceptance was made, in the amount of the purchase price.

(c) Loans or extensions of credit, or portions of them, to the extent fully secured by United States obligations if both of the following apply:

(i) The extent of the security is determined by the current market value of the collateral, which may be either of the following:

(a) Bonds, notes, certificates of indebtedness, or treasury bills of the United States or similar obligations fully guaranteed as to principal and interest by the United States;

(b) Loans to the extent guaranteed as to repayment of principal by the full faith and credit of the United States government, as set forth in paragraph (B)(3)(d)(ii) of this rule.

(ii) The bank perfects a security interest in the collateral under applicable law.

(d) Loans to or guaranteed by a federal agency, which may be either of the following:

(i) Loans or extensions of credit to any department, agency, bureau, board commission, or establishment of the United States or any corporation wholly owned directly or indirectly by the United States;

(ii) Loans or extensions of credit, including portions of them, to the extent secured by unconditional takeout commitments or guarantees of any of the governmental entities listed in paragraph (B)(3)(d)(i) of this rule, subject to both of the following:

(a) The commitment or guarantee is payable in cash or its equivalent within sixty days after demand for payment is made.

(b) The commitment or guarantee is considered unconditional if the protection afforded the bank is not substantially diminished or impaired if loss should result from factors beyond the bank's control. Protection against loss is not materially diminished or impaired by procedural requirements, such as an agreement to pay on the obligation 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.

(e) Loans or extensions of credit to a state or political subdivision that constitute a general obligation of the state or political subdivision, and for which the lending bank has obtained the opinion of counsel that the loan or extension of credit is a valid and enforceable general obligation of the borrower, and loans or extensions of credit, including portions of them, to the extent guaranteed or secured by a general obligation of a state or political subdivision and for which the lending bank has obtained the opinion of counsel that the guarantee or collateral is a valid and enforceable general obligation of that public body.

(f) Loans or extensions of credit, including portions of them, to the extent secured by a segregated deposit account in the lending bank, provided a security interest in the deposit has been perfected under applicable law, and subject to both of the following:

(i) Where the deposit is eligible for withdrawal before the secured loan matures, the bank must establish internal procedures to prevent release of the security without the lending bank's prior consent.

(ii) A deposit that is denominated and payable in a currency other than that of the loan or extension of credit that it secured may be eligible for this exception if the currency is freely convertible to United States dollars, subject to both of the following conditions:

(a) 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.

(b) The lending bank must establish procedures periodically to revalue foreign currency deposits to ensure that the loan or extension of credit remains fully secured at all times.

(g) Loans or extensions of credit to any financial institution or to any receiver, conservator, superintendent of banks, or other agent in charge of the business and property of a financial institution when an emergency situation exists and a bank is asked to provide assistance to another financial institution, and the loan is approved by the superintendent. For purposes of this paragraph, "financial institution" means a commercial bank, savings bank, trust company, savings association, or credit union.

(h) Loans or extensions of credit to the student loan marketing association.

(i) A loan or extension of credit to an industrial development authority or similar public entity created to construct and lease a plant facility, including a health care facility, to an industrial occupant is deemed a loan to the lessee, if all of the following conditions are met:

(i) The bank evaluates the creditworthiness of the industrial occupant before the loan is extended to the authority;

(ii) The authority's liability on the loan is limited solely to whatever interest it has in the particular facility;

(iii) The authority's interest is assigned to the bank as security for the loan or the industrial occupant issues a promissory note to the bank that provides a higher order of security than the assignment of a lease;

(iv) The industrial occupant's lease rentals are assigned and paid directly to the bank.

(j) A loan or extension of credit to a leasing company for the purpose of purchasing equipment for lease is deemed a loan to the lessee, if all of the following conditions are met:

(i) The bank evaluates the creditworthiness of the lessee before the loan is extended to the leasing corporation;

(ii) The loan is without recourse to the leasing corporation;

(iii) The bank is given a security interest in the equipment and in the event of default, may proceed directly against the equipment and the lessee for any deficiency resulting from the sale of the equipment;

(iv) The leasing corporation assigns all of its rights under the lease to the bank;

(v) The lessee's lease payments are assigned and paid to the bank;

(vi) The lease terms are subject to the same limitations that would apply to a bank acting as a lessor.

(C)

(1) For purposes of determining compliance with section 1109.22 of the Revised Code and this rule, a bank shall determine its lending limit as of the most recent of the following dates:

(a) The last day of the preceding calendar quarter;

(b) The date on which there is a change in the bank's capital category for purposes of 12 U.S.C. 1831 .

(2)

(a) Bank's lending limit calculated in accordance with paragraph (C)(1)(a) of this rule will be effective as of the earlier of the following dates:

(i) The date on which the bank's consolidated report of condition and income (call report) is submitted;

(ii) The date on which the bank's call report is required to be submitted.

(b) A bank's lending limit calculated in accordance with paragraph (C)(1)(b) of this rule will be effective on the date that the limit is to be calculated.

(3) If the superintendent determines for safety and soundness reasons that a bank should calculate its lending limit more frequently than required by paragraph (C)(1) of this rule, the superintendent may provide written notice to the bank directing the bank to calculate its lending limit at a more frequent interval, and the bank shall thereafter calculate its lending limit at that interval until further notice.

(D)

(1) Loans or extensions of credit to one borrower are attributed to another person and each person is deemed a borrower in either of the following circumstances:

(a) When proceeds of a loan or extension of credit are to be used for the direct benefit of the other person, to the extent of the proceeds so used;

(b) When a common enterprise exists between the persons.

(2) The proceeds of a loan or extension of credit to a borrower are deemed to be used for the direct benefit of another person and are attributed to the other person when the proceeds, or assets purchased with the proceeds, are transferred to another person, other than in a bona fide arm's length transaction where the proceeds are used to acquire property goods or services.

(3) A common enterprise exists and loans to separate borrowers are aggregated in each of the following cases:

(a) When the expected source of repayment for each loan or extension of credit is the same for each borrower and neither borrower has another source of income from which the loan, together with the borrower's other obligations, may be fully repaid. An employee is not treated as a source of repayment under this paragraph because of wages and salaries paid to an employee, unless the standards of paragraph (C)(3)(b) of this rule are met.

(b) When loans or extensions of credit are made to borrowers who are related, directly or indirectly, through common control, including where one borrower is directly or indirectly controlled by another borrower, and substantial financial interdependence exists between or among the borrowers. Substantial financial interdependence exists when fifty per cent or more of one borrower's gross receipts or gross expenditures, on an annual basis, are derived from transactions with the other borrower. Gross receipts and expenditures include gross revenues and expenses, intercompany loans, dividends, capital contributions, and similar receipts or payments.

(c) When separate persons borrow from a bank to acquire a business enterprise of which those borrowers will own more than fifty per cent of the voting securities or voting interests, in which case a common enterprise exists between the borrowers for purposes of combining the acquisition loans.

(d) When the superintendent determines, based upon an evaluation of the facts and circumstances or particular transactions, that a common enterprise exists.

(4)

(a) Loans or extensions of credit by a bank to a corporate group may not exceed fifty per cent of the bank's capital. This limitation applies only to loans subject to the combined general limit and not otherwise excepted by the superintendent. A corporate group includes a person and all of its subsidiaries. For purposes of this paragraph a corporation or a limited liability company is a subsidiary of a person if the person owns or beneficially owns, directly or indirectly, more than fifty per cent of the voting securities or voting interests of the corporation or company.

(b) Except as provided in paragraph (D)(4)(a) of this rule, loans or extensions of credit to a person and its subsidiary, or to different subsidiaries of a person, are not combined unless either the direct benefit or the common enterprise test is met.

(5) In the case of loans to partnerships, joint ventures, and associations, the following requirements apply:

(a) Loans and extensions of credit to a partnership, joint venture, or association are deemed to be loans or extensions of credit to each member of the partnership, joint venture, or association. This requirement does not apply to limited partners in limited partnerships or to members of joint ventures or associations if the partners or members, by the terms of the partnership or membership agreement, are not held generally liable for the debts or actions of the partnership, joint venture, or association, and those provisions are valid under applicable law.

(b)

(i) Loans or extensions of credit to members of a partnership, joint venture, or association are not attributed to the partnership, joint venture, or association unless either the direct benefit or the common enterprise tests are met. Both the direct benefit and common enterprise tests are met between a member of a partnership, joint venture or association and the partnership, joint venture or association, when loans or extensions of credit are made to the member to purchase an interest in the partnership, joint venture or association.

(ii) Loans or extensions of credit to members of a partnership, joint venture, or association are not attributed to other members of the partnership, joint venture, or association unless either the direct benefit or common enterprise test is met.

(6)

(a) Loans and extensions of credit to foreign governments, their agencies, and instrumentalities are aggregated with one another only if the loans or extensions of credit fail to meet either the means test or the purpose test at the time the loan or extension of credit is made.

(i) The means test is satisfied if the borrower has resources or revenue of its own sufficient to service its debt obligations. If the government's support, excluding guarantees by a central government of the borrower's debt, exceeds the borrower's annual revenues from other sources, it is presumed that the means test is not satisfied.

(ii) The purpose test is satisfied if the purpose of the loan or extension of credit is consistent with the purposes of the borrower's general business.

(b) In order to show that the means and purpose tests have been satisfied, a bank shall, at a minimum, retain in its files all of the following items:

(i) A statement, accompanied by supporting documentation, describing the legal status and the degree of financial and operational autonomy of the borrowing entity;

(ii) Financial statements for the borrowing entity for a minimum of three years prior to the date the loan or extension of credit was made or for each year that the borrowing entity has been in existence, if less than three;

(iii) Financial statements for each year the loan or extension of credit is outstanding;

(iv) The bank's assessment of the borrower's means of servicing the loan or extension of credit, including specific reasons in support of that assessment, including an analysis of the borrower's financial history, its present and projected economic and financial performance, and the significance of any financial support provided to the borrower by third parties, including the borrower's central government;

(v) A loan agreement or other written statement from the borrower that clearly describes the purpose of the loan or extension of credit. The written representation ordinarily constitutes sufficient evidence that the purpose test has been satisfied. However, when, the time the funds are disbursed, the bank knows or has reason to know of other information suggesting that the borrower will use the proceeds in a manner inconsistent with the written representation, it may not, without further inquiry, accept the representation.

(c) Notwithstanding paragraphs (D)(1) to (D)(5) of this rule, when previously outstanding loans and other extensions of credit to a foreign government, its agencies, and instrumentalities, public-sector obligors that qualified for a separate lending limit under paragraph (D)(6)(a) of this rule are consolidated under a central obligor in a qualifying restructuring, the loans are not aggregated and attributed to the central obligor. This includes any substitution in named obligors, solely because of the restructuring. The loans, other than loans originally attributed to the central obligor in their own right, are not considered obligations of the central obligor and continue to be attributed to the original public-sector obligor for purposes of the lending limit.

(i) Loans and other extensions of credit to a foreign government, its agencies, and instrumentalities will qualify for the non-combination process under paragraph (D)(6)(c)(i) of this rule only if they are restructured in a sovereign debt restructuring approved by the superintendent, upon request by a bank for application of the noncombination rule. The factors that the superintendent will use in making the determination include, but are not limited to, the following:

(a) Whether the restructuring involves a substantial portion of the total commercial bank loans outstanding to the foreign government, its agencies, and instrumentalities;

(b) Whether the restructuring involves a sub-stantial number of the foreign country's external commercial bank creditors;

(c) Whether the restructuring and consolidation under a central obligor is being done primarily to facilitate external debt management;

(d) Whether the restructuring includes features of debt or debt-service reduction.

(ii) With respect to any case in which the non-combination process under paragraph (D)(6)(c)(i) of this rule applies, a bank's loans and other extensions of credit to a foreign government, its agencies and instrumentalities, including restructured debt, shall not exceed, in the aggregate, fifty per cent of the bank's capital.

(E)

(1) A loan, within a bank's legal lending limit when made, will not be deemed a violation but will be treated as nonconforming if the loan is no longer in conformity with the bank's lending limit because of either of the following:

(a) The bank's capital has declined, borrowers have subsequently merged or formed a common enterprise, lenders have merged, the lending limit or capital rules have changed;

(b) Collateral securing the loan to satisfy the requirements of a lending limit exception has declined in value.

(2) A bank shall use reasonable efforts to bring a loan that is nonconforming as a result of paragraph (E)(1)(a) of this rule into conformity with the bank's lending limit unless to do so would be inconsistent with safe and sound banking practices.

(3) A bank shall bring a loan that is nonconforming as a result of circumstances described in paragraph (E)(1)(b) of this rule into conformity with the bank's lending limit within thirty calendar days, except when judicial proceedings, regulatory actions or other extraordinary circumstances beyond the bank's control prevent the bank from taking action.

Effective: 02/03/2007
R.C. 119.032 review dates: 11/15/2006 and 11/15/2011
Promulgated Under: 119.03
Statutory Authority: 1121.03
Rule Amplifies: 1109.22
Prior Effective Dates: 2/18/02, 5/29/97, 1/3/97 (Emer.), 12/29/90, 4/7/90, 9/9/88

1301:1-3-01.1 Derivative transactions.

(A) As used in division (A)(1) of section 1109.22 of the Revised Code, "loans and extensions of credit" must also include any credit exposure to a person arising from a derivative transaction between the person and the bank.

(B) As used in this rule, "derivative transaction" includes any transaction that is a contract, agreement, swap, warrant, note, or option that is based, in whole or in part, on the value of, any interest in, or any quantitative measure or the occurrence of any event relating to, one or more commodities, securities, currencies, interest or other rates, indices, or other assets.

Effective: 12/10/2012
Promulgated Under: 111.15
Statutory Authority: 1121.06
Rule Amplifies: 1109.22

1301:1-3-02 Real estate lending standards.

(A) Each bank shall adopt and maintain written policies that establish appropriate limits and standards for extensions of credit that are secured by liens on or interests in real estate, or that are made for the purpose of financing permanent improvements to real estate.

(B)(1) Real estate lending policies adopted pursuant to this rule shall be all of the following:

(a) Consistent with safe and sound banking practices;

(b) Appropriate to the size of the institution and the nature and scope of its operations;

(c) Reviewed and approved by the bank's board of directors at least annually.

(2) Real estate lending policies shall establish all of the following:

(a) Loan portfolio diversification standards;

(b) Prudent underwriting standards, including loan-to-value limits, that are clear and measurable;

(c) Loan administration procedures for the bank's real estate portfolio;

(d) Documentation, approval, and reporting requirements to monitor compliance with the bank's real estate lending policies.

(C) Each bank shall monitor conditions in the real estate market in its lending area to ensure that its real estate lending policies continue to be appropriate for current market conditions.

(D) The real estate lending policies adopted pursuant to this rule should reflect consideration of any administrative guidelines for real estate lending policies the superintendent may adopt pursuant to division (B) of section 1121.03 of the Revised Code.

R.C. 119.032 review dates: 09/06/2007 and 11/15/2011

Promulgated Under: 119.03

Statutory Authority: 1121.03(A)

Rule Amplifies: 1109.16

Prior Effective Dates: 5/29/97

1301:1-3-03 Letters of credit.

A bank may issue letters of credit permissible under chapter 1305. Of the Revised Code, provided that all letters of credit are issued in conformity with all of the following:

(A) Each letter of credit shall conspicuously state that it is a letter of credit or be conspicuously entitled as such;

(B) The bank's undertaking shall contain a specified expiration date or be for a definite term;

(C) The bank's undertaking shall be limited in amount;

(D) The bank's obligation to pay shall arise only upon presentation of a draft or other documents specified in the letter of credit, and the bank shall not be called upon to determine questions of fact or law at issue between the bank's customer and the beneficiary;

(E) The bank's customer shall have an unqualified obligation to reimburse the bank for payments made under the letter of credit.

All items listed in paragraphs (a) to (e) of this rule shall be evidenced in writing.

Replaces: 1301:1-2-01

R.C. 119.032 review dates: 11/15/2006 and 11/15/2011

Promulgated Under: 119.03

Statutory Authority: 1121.03

Rule Amplifies: 1109.15 , 1109.22

Prior Effective Dates: 5/29/97, 4/7/90, 9/9/88

1301:1-3-04 Insider loans.

(A) For the purpose of this rule the following definitions apply unless otherwise specified:

(1) "Affiliate" means any company of which a bank is a subsidiary or any other subsidiary of that company.

(2) "Bank" means any banking institution, including any subsidiary of a bank. "Bank" does not include any foreign bank that maintains a branch in the united states, whether or not the branch is insured.

(3) "Company" means any corporation, partnership, business or other trust, association, joint venture, pool syndicate, sole proprietorship, unincorporated organization, or any other form of business entity not specifically listed herein. However, "company" does not include either of the following:

(a) Depository institution;

(b) A corporation the majority of the shares of which are owned by the United States of by any state.

(4)

(a) "Control" of a company or bank means that, directly or indirectly, or acting through or in concert with one or more persons one of the following exists:

(i) A person owns, controls, or has the power to vote twenty-five per cent or more of any class of voting securities of the company or bank;

(ii) A person controls in any manner the election of a majority of the directors or trustees of the company or bank;

(iii) A person has the power to exercise a controlling influence over the management or policies of the company or bank.

(b) A person is presumed to have control, including the power to exercise a controlling influence over the management or policies, of a company or bank if either of the following exists:

(i) Both of the following apply:

(a) The person is an executive officer or director of the company or bank;

(b) The person directly or indirectly owns, controls or has the power to vote more than ten per cent of any class of voting securities of the company or bank;

(ii) Both of the following apply:

(a) The person directly or indirectly owns, controls, or has the power to vote more than ten per cent of any class of voting securities of the company or bank;

(b) No other person owns, controls, or has the power to vote a greater percentage of that class of voting securities.

(c) An individual does not have control, including the power to exercise a controlling influence over the management or policies, of a company or bank solely by virtue of the individual's position as an officer or director of the company or bank.

(d) A person may rebut a presumption established by paragraph (A)(4) of this rule by submitting to the superintendent of financial institutions written materials that, in the superintendent's judgment, demonstrate an absence of control.

(5)

(a) "Director" of a company or bank means any director of the company or bank, whether or not receiving compensation. An advisory director is not considered a director if none of the following apply to the advisory director:

(i) The advisory director is not elected by the shareholders of the company or bank;

(ii) The advisory director is not authorized to vote on matters before the board of directors;

(iii) The advisory director provides solely general policy advice to the board of directors.

(b) Extensions of credit to a director of an affiliate of a bank are not subject to paragraphs (C), (E), and (F) of this rule if all of the following apply:

(i) The director of the affiliate is excluded, by resolution of the board of directors or by the code of regulations of the bank, from participation in major policymaking functions of the bank, and the director does not actually participate in the major policymaking functions of the bank;

(ii) The affiliate does not control the bank;

(iii) As determined annually, the assets of the affiliate do not constitute more than ten per cent of the consolidated assets of the company that both:

(a) Controls the bank;

(b) Is not controlled by any other company;

(iv) The director of the affiliate is not otherwise subject to paragraphs (c), (e), and (f) of this rule.

(c) For purposes of paragraph (C)(5)(b)(i) of this rule, a resolution of the board of directors or the bank's code of regulations may do either of the following:

(i) Include the director, by name or by title, in a list of persons excluded from participation in major policy-making functions of the bank;

(ii) Not include the director in a list of persons authorized, by name or by title, to participate in major policy-making functions of the bank.

(6)

(a) "Executive officer" of a company or bank means a person who participates or has authority to participate, other than in the capacity of a director, in major policymaking functions of the company or bank, whether or not the officer has an official title, the title designates the officer an assistant, or the officer is serving without 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 executive officers, unless the officer is excluded, by resolution of the board of directors or by the code of regulations of the bank or company, from participation, other than in the capacity of a director, in major policymaking functions of the bank or company, and the officer does not actually participate in major policymaking functions.

(b) Extensions of credit to an executive officer of an affiliate of a bank are not subject to paragraphs (C), (E), and (F) of this rule if all of the following apply:

(i) The executive officer is excluded, by resolution of the board of directors or by the code of regulations of the bank, from participation in major policymaking functions of the bank, and the executive officer does not actually participate in the major policymaking functions of the bank;

(ii) The affiliate does not control the bank;

(iii) As determined annually, the assets of the affiliate do not constitute more than ten per cent of the consolidated assets of the company that both:

(a) Controls the bank;

(b) Is not controlled by any other company;

(iv) The executive officer of the affiliate is not otherwise subject to paragraphs (C), (E), and (F) of this rule.

(c) For purposes of paragraphs (C)(6)(a) and (C)(6)(b)(i) of this rule, a resolution of the board of directors or the bank's code of regulations may do either of the following:

(i) Include the executive officer, by name or by title, in a list of persons excluded from participation in major policymaking functions of the bank;

(ii) Not include the executive officer in a list of persons authorized, by name or by title, to participate in major policymaking functions of the bank.

(7) "Foreign bank" has the meaning given in section 1119.01 of the Revised Code.

(8) "Immediate family" means the spouse of an individual, the individual's minor children, and any of the individual's children, including adults, residing in the individual's home.

(9) "Insider" means an executive officer, director, or principal shareholder, and includes any of their related interests.

(10) The lending limit for a bank is governed by section 1109.22 of the Revised Code and rule 1301:1-3-01 of the Administrative Code.

(11) "Pay an overdraft on an account" means to pay an amount upon the order of an account holder in excess of funds on deposit in the account.

(12) "Person" means an individual or a company.

(13)

(a) "Principal shareholder" means a person, other than an insured bank, that directly or indirectly, or acting through or in concert with one or more persons, owns, controls, or has the power to vote more than ten per cent of any class of voting securities of bank or company. Shares owned or controlled by a member of an individual's immediate family are considered to be held by the individual.

(b) A principal shareholder of a bank does not include a company of which a bank is a subsidiary.

(14) "Related interest of a person" means either of the following:

(a) A company that is controlled by that person;

(b) A political or campaign committee that is controlled by that person or the funds or services of which will benefit that person.

(15) "Subsidiary" has the meaning given in division (G) of section 1109.53 of the Revised Code, but does not include a subsidiary of a bank.

(B)

(1) An extension of credit is a making or renewal of any loan, a granting of a line of credit, or an extending of credit in any manner whatsoever, and includes all of the following:

(a) A purchase of securities, assets or obligations under a repurchase agreement;

(b) An advance by means of an overdraft, cash item, or otherwise;

(c) Issuance of a standby letter of credit, or other similar arrangement regardless of name or description, or an ineligible acceptance;

(d) An acquisition by discount, purchase, exchange, or otherwise of any note, draft, bill of exchange, or other evidence of indebtedness upon which an insider may be liable as maker, drawer, endorser, guarantor, or surety;

(e) An increase of an existing indebtedness, but not if the additional funds are advanced by the bank for its own protection for either of the following:

(i) Accrued interest;

(ii) Taxes, insurance, or other expenses incidental to the existing indebtedness;

(f) An advance of unearned salary or other unearned compensation for a period in excess of thirty days;

(g) Any other similar transaction as a result of which a person becomes obligated to pay money, or its equivalent, to a bank, whether the obligation arises directly or indirectly, or because of an endorsement on an obligation or otherwise, or by any means whatsoever.

(2) An extension of credit does not include any of the following:

(a) An advance against accrued salary or other accrued compensation, or an advance for the payment of authorized travel or other expenses incurred or to be incurred on behalf of the bank;

(b) A receipt by a bank of a check deposited in or delivered to the bank in the usual course of business unless it results in the carrying of a cash item for or the granting of an overdraft, other than an inadvertent overdraft in a limited amount that is promptly repaid, as described in paragraph (C) of this rule;

(c) An acquisition of a note, draft, bill of exchange, or other evidence of indebtedness through any of the following:

(i) A merger or consolidation of banks or a similar transaction by which a bank acquires assets and assumes liabilities of another bank or similar organization;

(ii) Foreclosure on collateral or similar proceeding for the protection of the bank, provided that the indebtedness is not held for a period of more than three years from the date of the acquisition, subject to extension by the superintendent for good cause;

(d) Either of the following provisions for the protection of a bank:

(i) An endorsement or guarantee for the protection of a bank of any loan or other asset previously acquired by the bank in good faith;

(ii) Any indebtedness to a bank for the purpose of protecting the bank against loss or of giving financial assistance to it;

(e) Indebtedness of fifteen thousand dollars or less arising by reason of any general arrangement by which a bank does either of the following:

(i) Acquires charge or time credit accounts;

(ii) Makes payments to or on behalf of participants in a bank credit card plan, check credit plan, or similar open-end credit plan, provided both of the following conditions are met:

(a) The indebtedness does not involve prior individual clearance or approval by the bank other than for the purposes of determining authority to participate in the arrangement and compliance with any dollar limit under the arrangement;

(b) The indebtedness is incurred under terms that are not more favorable than those offered to the general public;

(f) Indebtedness of five thousand dollars or less arising by reason of an interest-bearing overdraft credit plan of the type specified in paragraph (C)(5) of this rule;

(g) A discount of promissory notes, bills of exchange, conditional sales, contracts, or similar paper, without recourse.

(3) Non-interest-bearing deposits to the credit of a bank are not considered loans, advances, or extensions of credit to the bank of deposit; nor is the giving of immediate credit to a bank upon uncollected items received in the ordinary course of business to be a loan, advance, or extension of credit to the depositing bank.

(4) For purposes of paragraph (C) of this rule, an extension of credit by a bank is made at the time the bank enters into a binding commitment to make the extension of credit.

(5) A participation without recourse is an extension of credit by the participating bank, not by the originating bank.

(6)

(a) Except as provided in paragraph (B)(6)(b) of this rule, an extension of credit is made to an insider to the extent that the proceeds are transferred to the insider or are used for the tangible economic benefit of the insider.

(b) An extension of credit is not made to an insider under paragraph (B)(6)(a) of this rule if both of the following conditions are me:

(i) The credit is extended on terms that would satisfy the standard set forth in paragraph (C)(1) of this rule for extensions of credit to insiders;

(ii) The proceeds of the extension of credit are used in a bona fide transaction to acquire property, goods, or services for the insider.

(C)

(1)

(a) No bank may extend credit to any insider of the bank or insider of its affiliates unless the extension of credit is both of the following:

(i) Is made on substantially the same terms, including interest rates and collateral, as, and following credit-underwriting procedures that are not less stringent than, those prevailing at the time for comparable transactions by the bank with other persons that are not covered by this rule and who are not employed by the bank;

(ii) Does not involve more than the normal risk of repayment or present other unfavorable features.

(b) Nothing in paragraph (C)(1)(a) or paragraph (C)(5)(b)(ii) of this rule shall prohibit any extension of credit made pursuant to a benefit or compensation program that is both of the following:

(i) Widely available to employees of the bank and, in the case of extensions of credit to an insider of its affiliates, is widely available to employees of the affiliates at which that person is an insider;

(ii) Does not give preference to any insider of the bank over other employees of the bank and, in the case of extensions of credit to an insider of its affiliates, does not give preference to any insider of its affiliates over other employees of the affiliates at which that person is an insider.

(2)

(a) No bank may extend credit, which term includes granting a line of credit, to any insider of the bank or insider of its affiliates in an amount that, when aggregated with the amount of all other extensions of credit to that person and to all related interests of that person, exceeds the higher of twenty-five thousand dollars or five per cent of the bank's capital, unless both of the following apply:

(i) The extension of credit has been approved in advance by a majority of the entire board of directors of that bank;

(ii) The interested party has abstained from participating directly or indirectly in the voting.

(b) In no event may a bank extend credit to any insider of the bank or insider of its affiliates in an amount that, when aggregated with all other extensions of credit to that person, and all related interests of that person exceeds five hundred thousand dollars, except by complying with the requirements of this paragraph (C)(2) of this rule.

(c) Approval by the board of directors under paragraphs (C)(2)(a) and (C)(2)(b) of this rule is not required for an extension of credit that is made pursuant to a line of credit that was approved under paragraph (C)(2)(a) of this rule within fourteen months of the date of the extension of credit. The extension of credit must also be in compliance with the requirements of paragraph (C)(1) of this rule.

(d) Participation in the discussion, or any attempt to influence the voting, by the board of directors regarding an extension of credit constitutes indirect participation in the voting by the board of directors on an extension of credit.

(3) No bank may extend credit to any insider of the bank or insider of its affiliates in an amount that, when aggregated with the amount of all other extensions of credit by the bank to that person and to all related interests of that person, exceeds the lending limit of the bank specified in paragraph (A)(10) of this rule. This prohibition does not apply to an extension of credit by a bank to a company of which the bank is a subsidiary or to any other subsidiary of that company.

(4)

(a) A bank may not extend credit to any insider of the bank or insider of its affiliates unless the extension of credit is in an amount that, when aggregated with the amount of all out-standing extensions of credit by the bank to all such insiders, does not exceed the bank's capital.

(b)

(i) Banks with deposits of less than one hundred million dollars may by resolution of its board of directors increase the general limit specified in paragraph (C)(4)(a) of this rule to a level not to exceed two times the bank's capital, if all of the following conditions are met:

(a) The board of directors determines that the higher limit is consistent with prudent, safe, and sound banking practices in light of the bank's experience in lending to its insiders and is necessary to attract or retain directors or to prevent restricting the availability of credit in small communities;

(b) The resolution sets forth the facts and reasoning on which the board of directors bases the finding, including the amount of the bank's lending to its insider as a percentage of the bank's capital as of the date of the resolution;

(c) The bank meets or exceeds, on a fully phased-in basis, all applicable capital requirements established by the superintendent;

(d) The bank received a satisfactory composite rating in its most recent report of examination.

(ii) If a bank has adopted a resolution authorizing a higher limit pursuant to paragraph (C)(4)(b)(i) of this rule and subsequently fails to meet the requirements of paragraph (C)(4)(b)(i)(c) or (C)(4)(b)(i)(d) of this rule, the bank shall not extend any additional credit, including a renewal of any existing extension of credit, to any insider of the bank or its affiliates unless the extension or renewal is consistent with the general limit in paragraph (C)(4)(a) of this rule.

(c)

(i) The general limit specified in paragraph (C)(4)(a) of this rule does not apply to any of the following:

(a) 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 obligations fully guaranteed as to principal and interest by the United States;

(b) 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 of any corporation wholly owned directly or indirectly by the United States;

(c) Extensions of credit secured by a perfected security interest in a segregated deposit account in the lending bank;

(d) Extensions of credit arising from the discount of negotiable or nonnegotiable installment consumer paper that is acquired from an insider and carries a full or partial recourse endorsement or guarantee by the insider, if all of the following conditions are met:

(i) The financial condition of each maker of the consumer paper is reasonably documented in the bank's files or known to its officers;

(ii) 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 the obligation and not on any endorsement or guarantee by the insider;

(iii) The maker of the instrument is not an insider.

(ii) The exceptions in paragraphs (C)(4)(c)(i)(a) to (C)(4)(c)(i)(c) of this rule apply only to the amount of the extensions of credit that are secured in the manner described in the exceptions.

(5)

(a) No bank may pay an overdraft of an executive officer or director of the bank or executive officer or director of its affiliates on an account at the bank, unless the payment of funds is made in accordance with either of the following:

(i) A written, preauthorized, interest-bearing extension of credit plan that specifies a method of repayment;

(ii) A written, preauthorized transfer of funds from another account of the account holder at the bank.

(b) The prohibition in paragraph (C)(5)(a) of this rule does not apply to payment of inadvertent overdrafts on an account in an aggregate amount of one thousand dollars or less, if both of the following conditions are met:

(i) The account is not overdrawn for more than five business days;

(ii) The bank charges the executive officer or director the same fee charged any other customer of the bank in similar circumstances.

(c) The prohibition in paragraph (C)(5)(a) of this rule does not apply to either:

(i) The payment by a bank of an overdraft of a principal shareholder of the bank, unless the principal shareholder is also an executive officer or director; or

(ii) The payment by a bank of an overdraft of a related interest of an executive officer, director, or principal shareholder of the bank or executive officer, director, or principal shareholder of its affiliates.

(D) The following restrictions on extensions of credit by a bank to any of its executive officers apply in addition to any restrictions on extensions of credit by a bank to insiders of the bank or its affiliates set forth elsewhere in this rule. The restrictions of this paragraph apply only to executive officers of the bank and not to executive officers of its affiliates.

(1) No bank may extend credit to any of its executive officers, and no executive officer of a bank shall borrow from or otherwise become indebted to the bank, except in the amounts, for the purposes, and upon conditions specified in paragraphs (D)(3) and (D)(4) of this rule.

(2) No bank may extend credit in an aggregate amount greater than the amount permitted in paragraph (D)(3)(d) of this rule to a partnership in which one or more of the bank's executive officers are partners and, either individually or together, hold a majority interest. For the purposes of paragraph (D)(3)(d) of this rule, the total amount of credit extended by a bank to the partnership is considered extended to each executive officer of the bank who is a member of the partnership.

(3) A bank is authorized to extend credit to any executive officer of the bank of any of the following kinds and in any of the following amounts:

(a) In any amount to finance the education of the executive officer's children;

(b) In any amount to finance or refinance the purchase, construction, maintenance, or improvement of a residence of the executive officer, if any of the following conditions that apply are met:

(i) The extension of credit is secured by a first lien on the residence and the residence is owned, or expected to be owned after the extension of credit, by the executive officer;

(ii) In the case of a refinancing, that only the amount used to repay the original extension of credit, together with the closing costs of the refinancing, and any additional amount used for any purposes enumerated in this paragraph (D)(3)(b), are included within this category of credit;

(c) In any amount, if the extension of credit is secured in a manner described in paragraphs (C)(4)(c)(i)(a) to (C)(4)(c)(i)(c) of this rule;

(d) For any other purpose not specified in paragraphs (D)(3)(a) to (D)(3)(c) of this rule, if the aggregate amount of extensions of credit to that executive officer under this paragraph does not exceed at any one time the higher of two and one half per cent of the bank's capital or twenty-five thousand dollars, but in no event more than one hundred thousand dollars.

(4) Any extension of credit by a bank to any of its executive officers shall be all of the following:

(a) Promptly reported to the bank's board of directors;

(b) In compliance with the requirements of paragraph (C)(1) of this rule;

(c) Preceded by the submission of a detailed current financial statement of the executive officer;

(d) Made subject to the condition in writing that the extension of credit will, at the option of the bank, become due and payable at any time that the officer is indebted to any other bank or banks in an aggregate amount greater than the amount specified for a category of credit in paragraph (D)(3) of this rule.

(E) No executive officer, director, or principal shareholder of a bank or any of its affiliates shall knowingly receive, or knowingly permit any of that person's related interests to receive, from a bank, directly or indirectly, any extension of credit not authorized under this rule.

(F)

(1) Each bank shall maintain records necessary for compliance with the requirements of this rule.

(2) Any recordkeeping method adopted by a bank shall do both of the following:

(a) Identify, through an annual survey, all insiders of the bank itself;

(b) Maintain records of all extensions of credit to insiders of the bank itself, including the amount and terms of each extension of credit.

(3) Any recordkeeping method adopted by a bank shall maintain records of extensions of credit to insiders of the bank's affiliates by one of the following:

(a) A survey method that includes both of the following:

(i) Identifying, through an annual survey, each insider of the bank's affiliates;

(ii) Maintaining records of the amount and terms of each extension of credit by the bank to those insiders;

(b) A borrower-inquiry method that includes both of the following:

(i) Requiring as part of each extension of credit that the borrower indicate whether the borrower is an insider of an affiliate of the bank;

(ii) Maintaining records that identify the amount and terms of each extension of credit by the bank to borrowers identifying themselves as insiders of affiliates.

(c) A recordkeeping method other than those identified in paragraphs (F)(3)(a) and (F)(3)(b) of this rule if the superintendent determines that the bank's method is at least as effective as the identified methods.

(4) A bank that is prohibited by law or by an express resolution of the board of directors of the bank from making an extension of credit to any company or other entity that is covered by this rule as a company is not required to maintain any records of the related interests of the insiders of the bank or its affiliates or to inquire of borrowers whether they are related interests of the insiders of the bank or its affiliates.

(G) Each executive officer of a bank who becomes indebted to any other bank or banks in an aggregate amount greater than the amount specified for a category of credit in paragraph (D)(3) of this rule, shall, within ten days of the date the indebtedness reaches that level, make a written report to the board of directors of the officer's bank. The report shall state the lender's name, the date and amount of each extension of credit, any security for it, and the purposes for which the proceeds have been or are to be used.

(H) Each bank shall include with, but not as part of, each report of condition made pursuant to section 1121.21 of the Revised Code a report of all extensions of credit made by the bank to its executive officers since the date of the bank's previous report of condition.

(I)

(1) For the purposes of this paragraph (I) of this rule, the following definitions apply;

(a) "Principal shareholder of a bank" means any person, other than an insured bank, or a foreign bank as defined in paragraph (A)(6) of this rule that, directly or indirectly, owns, controls, or has power to vote more than ten per cent of any class of voting securities of the bank. "principal shareholder of a bank" includes a person that controls a principal shareholder, e.g., a person that controls a bank holding company. Shares of a bank, including a foreign bank, bank holding company, or other company owned or controlled by an individual's immediate family are presumed to be owned or controlled by the individual for the purposes of determining principal shareholder status.

(b) "Related interest" means either of the following:

(i) Any company controlled by a person;

(ii) Any political or campaign committee the funds or services of which will benefit a person or that is controlled by a person. For the purpose of this rule and rule 1301:1-3-05 of the Administrative Code, a related interest does not include a bank or a foreign bank.

(2)

(a) Upon receipt of a written request from the public, a bank shall make available the names of each of its executive officers and each of its principal shareholders to whom, or to whose related interests, the bank had outstanding as of the end of the latest previous quarter of the year, an extension of credit that, when aggregated with all other outstanding extensions of credit at that time from the bank to that person and to all related interests of that person, equaled or exceeded five per cent of the bank's capital or five million dollars, whichever amount is less. No disclosure under this paragraph is required if the aggregate amount of all extensions of credit outstanding at that time from the bank to the executive officer or principal shareholder of the bank and to all related interests of that person does not exceed twenty-five thousand.

(b) A bank is not required to disclose the specific amounts of individual extensions of credit.

(3) Each bank shall maintain records of all requests for the information described in paragraph (I)(2)(a) of this rule and the disposition of those requests. These records may be disposed of after two years from the date of the request.

(J) Each executive officer or director of a bank the shares of which are not publicly traded shall report annually to the board of directors of the bank the outstanding amount of any credit that was extended to the executive officer or director and that is secured by shares of the bank.

(K) Any bank, or any officer, director, employee, agent, or other person participating in the conduct of the affairs of the bank, that violates any provision of this rule, other than paragraph (I) of this rule is subject to civil penalties as specified in section 1121.35 of the Revised Code.

Effective: 02/03/2007
R.C. 119.032 review dates: 11/15/2006 and 11/15/2011
Promulgated Under: 119.03
Statutory Authority: 1121.03
Rule Amplifies: 1109.23 , 1109.24
Prior Effective Dates: 2/18/02, 5/29/97

1301:1-3-05 Insider loan reporting.

(A) For the purposes of this rule, the following definitions apply unless otherwise specified:

(1) "Bank" has the meaning given in division (B) of section 1101.01 of the Revised Code and includes a branch or agency of a foreign bank, or a commercial lending company controlled by a foreign bank or by a company that controls a foreign bank, where the branch or agency is maintained in a state of the United States or in the District of Columbia or the commercial lending company is organized under state law.

(2) "Company" "control of a company or bank," "executive officer," "extension of credit," "immediate family," and "person" have the meanings provided in rule 1301:1-3-04 of the Administrative Code.

(3) "Correspondent account" means an account that is maintained by a bank with another bank for the deposit or placement of funds. A correspondent account does not include either of the following:

(a) Time deposits at prevailing market rates;

(b) An account maintained in the ordinary course of business solely for the purpose of effecting federal funds transactions at prevailing market rates or making eurodollar placements at prevailing market rates.

(4) "Correspondent bank" means a bank that maintains one or more correspondent accounts for a bank during a calendar year that in the aggregate exceed an average daily balance during that year of one hundred thousand dollars or one half of one per cent of the bank's total deposits, as reported in its first consolidated report of condition during that calendar year, whichever amount is smaller.

(5) Principal share holder" and "related interest" have the meanings provided in paragraph (H) of rule 1301:1-3-04 of the Administrative Code.

(B)

(1) If during any calendar year an executive officer or principal shareholder of a bank or a related interest of such a person has outstanding an extension of credit from a correspondent bank of the bank, the executive officer or principal shareholder shall, on or before January thirty-first of the following year, make a written report to the board of directors of the bank.

(2) Except as provided in paragraph (B)(3) of this rule, the report required by paragraph (B)(1) of this rule shall include the following information:

(a) The maximum amount of indebtedness of the executive officer or principal shareholder and of each of that person's related interests to each of the banks' correspondent banks during the calendar year;

(b) The amount of indebtedness of the executive officer or principal shareholder and of each of that person's related interests outstanding to each of the bank's correspondent banks as of ten business days before the report required by paragraph (B) of this rule is filed;

(c) A description of the terms and conditions, including the range of interest rates, the original amount and date, maturity date, payment terms, security, if any, and any other unusual terms or conditions of each extension of credit included in the indebtedness reported under paragraph (B)(2)(a) of this rule.

(3) If the amount of indebtedness outstanding to a correspondent bank ten days before the filing of the report is not available or cannot be readily ascertained, an estimate of the amount of indebtedness may be filed with the report, provided that the report is supplemented within the next thirty days with the actual amount of indebtedness.

(4) For the purposes of paragraph (B) of this rule the following definitions apply:

(a) "Indebtedness" means an extension of credit, but does not include either of the following:

(i) Commercial paper, bonds, and debentures issued in the ordinary course of business;

(ii) Consumer credit in an aggregate amount of five thousand dollars or less from each of the bank's correspondent banks, provided the indebtedness is incurred under terms that are not more favorable than those offered to the general public.

(b) "Maximum amount of indebtedness" means, at the option of the reporting person, either of the following:

(i) The highest outstanding indebtedness during the calendar year for which the report is made;

(ii) The highest end of the month indebtedness outstanding during the calendar year for which the report is made.

(5) The reports required by this rule shall be retained at the bank for a period of three years. The superintendent may require these reports to be retained by the bank for an additional period of time. The reports filed under this rule are not required by this rule to be made available to the public and shall not be filed with the division unless specifically requested.

(6) Each bank shall advise each of its executive officers and each of its principal shareholders, to the extent known by the bank, of the reports required by this rule and make available to each of these persons a list of the names and addresses of the bank's correspondent banks.

(C)

(1)

(a) Upon receipt of a written request from the public, a bank shall make available the names of each of its executive officers and each of its principal shareholders to whom, or to whose related interests, any correspondent bank of the bank had outstanding, at any time during the previous calendar year, an extension of credit that, when aggregated with all other outstanding extensions of credit at the time from all correspondent banks of the bank to that person and to all related interests of such person, equaled or exceeded five per cent of the bank's capital or five hundred thousand dollars, whichever amount is less. No disclosure under this paragraph is required if the aggregate amount of all extensions of credit outstanding from all correspondent banks of the bank to the executive officer or principal shareholder of the bank and to all related interests of such a person does not exceed twenty-five thousand dollars at any time during the previous calendar year.

(b) A bank is not required to disclose the specific amounts of individual extensions of credit.

(2) Each bank shall maintain records of all requests for the information described in paragraph (C)(1) of this rule and the disposition of the requests. These records may be disposed of after two years from the date of the request.

Effective: 02/03/2007
R.C. 119.032 review dates: 11/15/2006 and 11/15/2011
Promulgated Under: 119.03
Statutory Authority: 1121.03
Rule Amplifies: 1109.23 , 1109.24
Prior Effective Dates: 5/29/97

1301:1-3-06 Revenue bonds.

(A) Within the meaning of division (A)(7) of section 1109.32 of the Revised Code, revenue bonds rated as investment grade by an established investment rating service (such investment rating service must be prescribed and certified by the superintendent pursuant to division (P) of section 2109.37 of the Revised Code) at the time of acquisition are eligible bank investments. It is understood that such ratings indicate the presence of protection for both principal and interest through satisfactory basic credit factors as follows:

(1) Assessed valuations; tax rates; tax collections; specific pledged revenues, with projections if available; operating expenses chargeable to revenues; net revenues available for debt service; nature of revenue lien; restrictions against excessive additional revenue bonds; necessity of project; competitive facilities legal authority for the revenue issue; economic status of political subdivision; and population, including growth trend.

(2) Absence of a rating shall not of itself render a security ineligible. Non-rated general obligations and revenue issues of quality but limited in size which possess the factors present in rated issues to a satisfactory and equivalent degree shall be regarded as eligible.

(B) In addition to the above prescribed requirements, in order to qualify as an eligible investment, the revenue bond must conform to the following requirements:

(1) The obligation must be current as to payment of principal and interest at the time of purchase, and the issue of which the obligation is a part in either original or refunded form, shall not have been in default as to the payment of either principal or interest for a period more than ninety days in the five years immediately preceding the date of purchase.

(2) When the obligation is issued under a trust agreement, the trustee must be a properly qualified trust company or bank doing a trust business.

R.C. 119.032 review dates: 11/15/2006 and 11/15/2011

Promulgated Under: 119.03

Statutory Authority: 1121.03

Rule Amplifies: 1109.32

Prior Effective Dates: 2/18/02, 4/29/81

1301:1-3-10 Operating subsidiaries.

(A) A bank may exercise all powers, other than deposit taking, that the bank may exercise pursuant to section 1109.02 of the Revised Code by means of an operating subsidiary. In order to qualify as an operating subsidiary, the parent bank must own more than fifty per cent of the voting stock, or an equivalent equity interest with limited liability, of the entity.

An operating subsidiary is not a bank subsidiary corporation as described in division (C)(1) of section 1109.44 of the Revised Code, and the acquisition, establishment, or performance of new activities in an operating subsidiary is not an investment in a bank subsidiary corporation pursuant to division (A) of section 1109.44 of the Revised Code. Investments in and extensions of credit to operating subsidiaries shall not be subject to sections 1109.22 , 1109.47 , 1109.54 , or 1109.55 of the Revised Code, but shall continue to be subject to other provisions of law applicable to loans and investments in stocks, bonds, debentures, and other obligations by banks.

(B) A bank that intends to acquire, establish, or perform new activities in an operating subsidiary shall submit a letter of notification to the superintendent of financial institutions. The letter must detail the proposed activities of the operating subsidiary and state whether any activity of the operating subsidiary will be conducted at some location other than a previously approved banking office of the bank. Letters of notification must be hand delivered or mailed, return receipt requested, to the superintendent's office.

(C) The bank may establish, acquire, or perform new activities in an operating subsidiary after thirty days from the date the superintendent receives the bank's letter of notification, unless notified to the contrary, or in less than thirty days if so notified by the superintendent. The superintendent will utilize the thirty-day period to review the bank's proposal to determine if the proposed activities are legally permissible for an operating subsidiary, and whether the bank's proposal is consistent with prudent banking principles and the policies of the division of financial institutions. The thirty-day period may be extended upon notice to the bank if the bank's letter raises issues that require additional information or time for analysis by the superintendent. If the thirty-day period is extended, the bank may establish, acquire, or perform new activities in the operating subsidiary only upon written notification by the superintendent.

The superintendent reserves the right to grant written approval of a bank's proposal to establish, acquire, or perform new activities in an operating subsidiary subject to conditions when there are legal or supervisory concerns.

(D) A bank may establish or acquire an operating subsidiary without notifying the superintendent, provided:

(1) The activities of the new operating subsidiary are limited to those activities previously reported by the bank pursuant to this rule in connection with the establishment or acquisition of a prior operating subsidiary;

(2) The establishment or acquisition of the prior operating subsidiary was considered permissible by the superintendent;

(3) The activities in which the new operating subsidiary will engage continue to be considered legally permissible by the superintendent; and

(4) The activities will be conducted in accordance with any conditions imposed by the superintendent in approving the conduct of these activities for any prior operating subsidiary of the bank.

(E) Unless otherwise provided by statute or rule, all provisions of state banking statutes and rules applicable to the operations of the parent bank shall be equally applicable to the operations of its operating subsidiaries.

(F) Unless otherwise provided by statute or rule, pertinent book figures of the parent bank and its operating subsidiaries shall be consolidated for the purpose of applying applicable statutory limitations, such as sections 1109.22 , 1109.23 , 1109.24 , 1109.31 , 1109.32 , 1109.39 , 1109.40 , and 1109.44 of the Revised Code.

(G) Each operating subsidiary shall be subject to examination and supervision by the superintendent in the same manner and to the same extent as the parent bank. If, upon examination, the superintendent ascertains that the operating subsidiary was created or is being operated in violation of a law or rule or that the manner of operation is unsafe or unsound, the superintendent shall direct the bank to take appropriate remedial action, which may include disposing of all or part of the operating subsidiary.

Effective: 02/03/2007
R.C. 119.032 review dates: 11/15/2006 and 11/15/2011
Promulgated Under: 119.03
Statutory Authority: 1121.03
Rule Amplifies: 1109.02
Prior Effective Dates: 4/6/00, 7/24/92, 9/9/88

1301:1-3-11 Bank subsidiary corporations and bank service corporations.

(A) A bank that intends to invest in, that is to acquire, establish, or perform new activities in, a bank subsidiary corporation or a bank service corporation shall file a letter with the superintendent of financial institutions requesting the approval of the superintendent. Such letter must:

(1) State the name and location of the bank subsidiary corporation or bank service corporation;

(2) Describe the activities in which the bank subsidiary corporation or bank service corporation will engage;

(3) Demonstrate that the investment proposed will not exceed the limitation on investments in the securities of a single issuer;

(4) Demonstrate that any and all anticipated loans to the bank subsidiary corporation or bank service corporation will not exceed the limitation on loans to a single borrower;

(5) Identify the investment authority to be used for the proposed investment and demonstrate that the proposed investment together with other loans and/or investments made pursuant to such authority will not exceed the aggregate limitation of such authority;

(6) List any other investors in the bank subsidiary corporation or bank service corporation together with the location of each such investor's principal place of business and the proportionate interest each will hold in the bank subsidiary corporation or bank service corporation; and

(7) Cite the authority for the permissibility of the proposed activities of the bank subsidiary corporation or bank service corporation or provide support for the superintendent to determine that the activities are a part of the business of banking or incidental thereto.

(B) In addition to the information required by paragraph (A) of this rule, a bank may include any other information in support of its request. The superintendent may also require any additional information the superintendent deems relevant to the consideration of the request.

(C) The superintendent shall render a decision on a proposed investment in a bank subsidiary corporation or a bank service corporation within ninety days of the date the superintendent acknowledges receipt of a technically complete letter requesting the superintendent's consent. A technically complete letter will include all information required under paragraphs (A) and (B) of this rule. If the superintendent fails to render a decision within ninety days after acknowledging receipt of a technically complete letter, the investment may be deemed to have the superintendent's consent.

(D) In determining whether or not to consent to a proposed investment in a bank subsidiary corporation or bank service corporation, the superintendent shall consider:

(1) Whether the activities are legally permissible;

(2) Whether the activities will be performed at permissible locations;

(3) Whether the proposed investment is within all applicable legal limitations;

(4) Whether all of the investors are permissible investors for a bank subsidiary corporation or a bank service corporation;

(5) The financial and managerial resources and future prospects of the bank and the bank subsidiary corporation or bank service corporation involved, including the financial capability of the bank to make the proposed investment; and

(6) Any possible adverse effects of the investment, such as undue concentration of resources, unfair or decreased competition, conflicts of interest, or unsafe and unsound banking practices.

(E) A bank's equity interest in a bank subsidiary corporation or bank service corporation must be voting stock, or an equivalent equity interest with limited liability.

R.C. 119.032 review dates: 11/15/2006 and 11/15/2011

Promulgated Under: 119.03

Statutory Authority: 1121.03

Rule Amplifies: 1109.44

Prior Effective Dates: 2/18/02, 9/9/88

1301:1-3-12 Mutual funds.

The limitation on investment in the securities of a single issuer imposed in division (A) of section 1109.47 of the Revised Code, which, in accordance with division (B)(1) of the Revised Code, does not apply to a bank's direct investment in the securities enumerated in divisions (A)(1) to (6) of section 1109.32 of the Revised Code, shall also not apply to a bank's equity investment in an investment company or mutual fund the portfolio of which consists solely of securities enumerated in divisions (A)(1) to (6) of section 1109.32 of the Revised Code.

R.C. 119.032 review dates: 11/15/2006 and 11/15/2011

Promulgated Under: 119.03

Statutory Authority: 1121.03

Rule Amplifies: 1109.47

Prior Effective Dates: 2/18/02, 12/29/90