Call Report and SBA Paycheck Protection Program Loans to Insiders

Issue/Inquiry

The Bank made an SBA Paycheck Protection Program loan in March 2020 to a company owned by a director of the Bank. Should this loan be included with the Insider loans reported in schedule RC-M of the Call Report?

Response Summary

Schedule RC-M of the Call Report follows the definitions of Regulation O under the Federal Reserve regarding Insider loans. For the purposes of Regulation O, an SBA Paycheck Protection Program loan to a director of the Bank, or a related interest, is excluded from extensions of credit. As such, a Small Business Administration (“SBA”) Paycheck Protection Program loan would not be included in the Call Report.

Response Detail

Loans to executive officers, directors, principal shareholders, and their related interests are reported on Line 1a of Schedule RC-M of the Consolidated Reports of Condition and Income (the “Call Report”). The Call Report instructions for the completion of schedule RC-M state that “extension of credit”, “executive officer”, “director”, “principal shareholder”, and “related interests” have the same meaning as in Regulation O.

Under Regulation O, 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. 12 CFR 215.3(a). A “related interest” of a person includes a company controlled by that person. The term “company” includes any corporation. 12 CFR 215.1(b);2(b) & (n)(1).

The Regulation accepts certain transactions from the definition of extension of credit, including the following:

• 215.3 (a)(8) – Except for purposes of §215.5 of this part, a loan:
  • (i) In which the participation by the Small Business Administration on a deferred basis is 100 percent pursuant to section 1102(a)(1) of Pub. L. 116-136 (to be codified at 15 U.S.C. 636(a)(2)(F))
  • (ii) That is made during the period beginning on February 15, 2020, and ending on August 8, 2020
  • (iii) That would not be prohibited by paragraph 120.110(o) of Title 13 or rules or interpretations thereof issued by the Small Business Administration

The reference to 15 U.S.C. 636(a)(2)(F) pertains to the SBA Paycheck Protection Program. Therefore, this section of Regulation O is intended to exclude such loans from the definition of extensions of credit covered by the Regulation.

The reference to section 215.5 pertains to restrictions regarding extensions of credit made to executive officers. Such loans are limited $25,000, or 2.5 percent, of the Bank’s unimpaired capital and surplus (not to exceed $100,000) but subject to exceptions for purposes such as the purchase of a residence or the education of the executive officer’s children. This means that SBA Paycheck Protection Program loans made to executive officers would be subject to these restrictions.

In this case, since the SBA Paycheck Protection Program loan was made to a company that is a related interest of a director of the Bank, as it is controlled by the director and was made during the period of February 15, 2020 through August 8, 2020, it would be excluded from extensions of credit covered by Regulation O. Therefore, it would not be reported in Schedule RC-M on Line 1a of the Call Report.

This response is for informational purposes only and is not intended for legal guidance.

This entry was posted on Monday, September 21st, 2020 at 9:19 am.