Download Potential Change in Definition of Statutory Capital Base That Would

Potential Change in Definition of Statutory Capital Base That Would Impact State-Chartered Banks
The Department of Banking and Finance (Department) has proposed a change in the definition of
Statutory Capital Base (SCB) as defined in O.C.G.A. Section 7-1-4(35) in its Housekeeping Bill for the
upcoming legislative session that would impact state-chartered banks. Through the work of the Code
Review Task Force and the Department’s internal working group, the Department sought input into an
acceptable definition of SCB. The Code Review Task Force is comprised of two members of senior
management at the Department and several banking attorneys, including a representative from CBA’s
General Counsel, James, Bates, Brannan, Groover, LLP. SCB is used to calculate legal lending limits,
investment limitations, fixed asset limitations, and other items. The most impactful calculation to many
of our member banks is the legal lending limit.
The current definition of SCB is defined in O.C.G.A. Section 7-1-4(35) as “the sum of capital stock, paidin-capital, appropriated retained earnings, and capital debt of a bank or trust company less any amount
of good will, core deposit intangibles, or other intangible assets related to the purchase, acquisition, or
merger of a bank charter or accumulated deficit (negative retained earnings).” As currently written, the
bank’s calculation of SCB could change on a daily basis and may impact the bank’s legal lending limit at
the time a loan is made.
The proposed change would use the definition of Common Equity Tier 1 Capital plus the Allowance for
Loan and Lease Losses as used in the Call Report for the SCB. This change would allow banks to calculate
the legal lending limit based on the most recent filing of the Call Report unless a material change should
occur after the filing of the Call Report.
The proposed definition of SCB is below:
7-1-4(35) "Statutory capital base" means the sum of the common equity tier 1 capital, as defined by
applicable federal law, and the allowance of loan and lease losses, as defined by applicable federal law,
as reported in the bank’s most recent Consolidated Report of Condition and Income; provided, however,
that the Department may enact regulations to phase-in the revision to this definition for those banks
that will have a decreased statutory capital base as of July 1, 2017. If significant capital changes occur
after the filing of the Consolidated Report of Condition which causes the common equity tier 1 capital to
increase or decrease by 5 percent or more, then the statutory capital base will be immediately
recalculated at the time of the capital change and it will be effective until the filing of the next
Consolidated Report of Condition and Income.
The proposed change merely changes the definition of SCB and does not impact the limits on obligations
of one person or corporation as defined in O.C.G.A. Section 7-1-285. One minor change in O.C.G.A.
Section 7-1-285 includes a clarification that legal lending limits (15% and 25% limitations) are
determined at the time of issuance of a binding commitment.
It is CBA’s understanding that Commissioner Kevin B. Hagler of the Department reached out to
institutions that may be negatively impacted by the change to the SCB definition and these institutions
were supportive of the change even though there was a direct impact to their institution.