Diversification of Loans and Investments

(a)A territorial bank shall not extend credit directly by means of discount of notes, issuance of letters of credit, acceptance of drafts or otherwise, or purchase any bond, note, bill of exchange or similar evidence of indebtedness, when by reason of such extension of credit or purchase the totals of such obligations so acquired which are held by such bank will exceed the limitations prescribed in the following table:

(1)Loans for a period not longer than 18 months to finance the construction of residential or farm buildings (50% of capital and surplus)

(2)Obligations maturing more than 10 years thereafter, except government obligations, corporate bonds, or obligations secured by real property (100% of capital and surplus)

(3)Obligations secured by real estate together with the current market value of any real estate owned by the bank and not used in its banking business (100% of capital and surplus or 75% of time deposits whichever is greater) CH. 106 BANKS

(4)Unsecured obligations of the same obligor (20% of capital and surplus)

(b)The limitation of Paragraph

(4)hereof shall not apply to loans and investments otherwise authorized by this Title when the obligations are:

(1)Obligations of the United States, of a state or territory or of a Federal Reserve Bank.

(2)Obligations to the extent that they are secured as to principal and interest by the guarantee, insurance or other like commitment of the United States, an agency of the United States or a Federal Reserve Bank, whether the commitment provides for payment in cash or in obligations of the United States.

(3)Obligations secured by obligations of the United States or of a state or territory having a value of 100% of the amount thereof.

(4)Obligations secured by assignment of a life insurance policy to the extent of the cash surrender value thereof less the amount of one annual premium, but the limitation on such obligations shall be 25% of capital and surplus.

(5)Obligations to the extent that they are secured by pledge of a deposit in a savings bank, but the limitation on such obligations shall be 25% of capital and surplus.

(6)Obligations arising from acceptance of drafts to the extent of 85% of the security, if such security is derived from the transaction financed by the acceptance, but the limitation on such obligations shall be 25% of capital and surplus.

(7)Obligations upon a banker’s acceptances to the extent that the obligations of the acceptor to the bank do not exceed in amount 30% of the capital and surplus.

(8)Obligations upon notes or drafts having a maturity of not more than 6 months exclusive of days of grace, drawn in good faith against actually existing values and secured by an instrument transferring or securing title to goods in process of shipment or to livestock or creating a lien on livestock to the amount of 85% of the value of the security, but the limitation on such obligations shall be 25% of capital and surplus.

(9)Obligations upon notes or drafts secured by trust receipts, shipping documents or receipts of a licensed or bonded warehouse or elevator transferring or securing title to readily marketable, nonperishable staples to the amount of 80% of the value of the security, but the limitation on these obligations shall be 25% of capital and surplus and this exemption shall not apply

(a)unless such staples are insured, if it is customary to insure them; or

(b)for more than 10 months to obligations of the same obligor arising from the same transaction or secured by the same staples.

(10)Obligations upon loans approved by the Board to a bank located within Guam or to a receiver or conservator thereof or to the Commissioner when he has taken possession thereof, but the limitation on these obligations shall be 25% of capital and surplus.

(11)Obligations secured by the assignment of accounts receivable to the extent of 80% of the amount of such accounts not overdue, but the limitation on these obligations shall be 25% of capital and surplus.

(12)Obligations secured by readily marketable stocks or bonds to the extent of 85% of the current value of the security, but the limitation on the obligations shall be 25% of capital and surplus.

(13)Obligations arising out of the daily transaction of the business of any clearing house association. CH. 106 BANKS

(c)In calculating for the purposes of this section the obligations of a single obligor or the obligations of a specified class there shall be included:

(1)The direct liability of the maker or acceptor of paper discounted or purchased and the liability of the endorser, drawer or guarantor who obtains a loan or discounts or sells paper under his guaranty. This Section excludes contingent liability created by purchase of commercial paper covering sale of goods.

(2)In the case of obligations of a partnership or association, the obligations of each general partner and of each member of the association.

(3)In the case of obligations of a general partner or a member of an association, the obligations of the partnership or association.

(4)In the case of obligations of a corporation, the obligations of any subsidiaries in which it owns, directly or indirectly, a majority of the outstanding voting stock.

(5)In the case of obligations of a corporation, the amount of a loan made to any other person to the extent that the proceeds of such loan directly or indirectly are to be

(a)loaned to the corporation;

(b)used for the acquisition from the corporation of any securities issued by the corporation, other than securities acquired by an underwriter for public offering; or

(c)transferred to the corporation without fair and adequate consideration. The discharge of an equivalent amount of debt previously incurred in good faith for value shall be deemed fair and adequate consideration.

(d)No provision in this section shall be construed to prohibit refinancing of any loan when the security appearing at the time of refinancing is sufficient to meet the provisions of this section.