Subject to such further restrictions and approvals as its
board of directors may set forth in its investment policy, a bank may purchase,
sell, and hold securities, as set forth in the following:
(1) Debt Obligations.
(a) Obligations of the United States
Government or Agencies of the United States Government.
The following may be held without limitation:
1. Securities issued by the United States
government or an agency of the United States government;
2. Securities guaranteed as to principal and
interest by the United States government or an agency of the United States
government;
3. Securities issued
under the U.S. Treasury's Separate Trading of Registered Interest and Principal
(STRIP's) program, which are offered in book entry form and which are direct
obligations of the U.S. Government, as authorized by Subtitle III, Chapter 31
of Title
31 U.S.C.; and
4.
Securities which are pre-refunded, with the redemption proceeds invested in
securities issued by the United States Government or an Agency of the United
States Government.
(b)
Obligations of a State or Territorial Government of the United States or
Agencies of State or Territorial Governments.
The following may be held without limitation:
1. General obligations of any state or
territorial government of the United States or any agency of such
governments;
2. Securities
guaranteed as to principal and interest by such state or territorial
governments or any agency thereof; and
3. Securities which are pre-refunded, with
the redemption proceeds invested in securities issued by state or territorial
governments or agencies thereof.
(c) Obligations of counties, district, and
municipalities of any state or territorial government of the United States.
1. The general obligations of counties,
districts, and municipalities of any state or territorial government of the
United States which is authorized to levy taxes may be held without
limit.
2. Securities issued by
counties, districts, and municipalities of any state or territorial government
of the United States which are secured by a pledge or assignment of tax
receipts sufficient to pay the principal and interest of such securities as
they become due may be held without limit.
3. Revenue obligations of counties,
districts, and municipalities of any state or territorial government of the
United States authorized to establish utility fees, public transportation usage
fees or public use fees where such levies or fees are pledged to and are
sufficient to pay the principal and interest of the securities as they become
due may be held without limit.
4.
In those instances where the repayment of revenue obligations is dependent upon
rentals or other fees payable to a political subdivision located within the
United States by a non-governmental unit, such as in the case of industrial
revenue bonds, the obligor shall be deemed to be the non-governmental unit
responsible for the payment of such rentals or other fees and any guarantor of
such payments. Investment in such securities is limited to fifteen (15) percent
of the bank's statutory capital base.
5. Securities issued by political
subdivisions located within the United States rated in the four highest rating
categories by a nationally recognized rating service may be held in an amount
up to fifteen (15) percent of a bank's statutory capital base.
(d) Corporate Debt Securities.
Corporate debt securities may be purchased which are:
1. Rated in the four highest rating
categories by a nationally recognized rating service;
2. Readily salable in an established market
with reasonable promptness at a price which corresponds to its fair
value;
3. Denominated in U.S.
dollars; and
4. With respect to
banks having a statutory capital of less than $20,000,000, such securities must
mature within 15 years.
A bank's investment in corporate debt securities is limited
to fifteen (15) percent of the bank's statutory capital base per obligor. A
bank's aggregate investment in corporate debt securities shall not exceed one
hundred (100) percent of the bank's statutory capital base.
(e) Debt Securities Taken in
Conformity with Lending Policies.
Debt obligations shall not be considered investments within
the meaning of this regulation where they:
1. Are taken in conformity with the bank's
lending policies;
2. Are included
in determining the outstanding credit for purposes of ascertaining compliance
with the bank's secured and unsecured loan limitations in O.C.G.A. §
7-1-285; and
3. With respect only to banks having a
statutory capital base of less than $20,000,000, mature within 15 years, and
are treated by the bank in all other respects as loans.
The debt obligations that qualify for this exception must be
combined with other investment securities or other obligations to the same
entity. This aggregation must not exceed the twenty-five (25) percent
limitation on obligations to any one person in O.C.G.A. §
7-1-285.
(2) Equity Securities.
Except as allowed by O.C.G.A. §
7-1-288 or in this regulation, a
bank may not engage in any transaction with respect to shares of stock or other
capital securities of any corporation.
(3) Investment Funds.
A state-chartered bank may invest up to fifteen (15) percent
of its statutory capital base in securities of, or other interests in, any
open-end or closed-end management type investment fund or investment trust
which is registered under the Investment Company Act of 1940, subject to the
following additional conditions.
(a)
The investment portfolio of such investment fund or investment trust shall be
limited to those securities in which banks or trust companies are permitted to
invest directly under this rule and Title 7 of the Official Code of Georgia;
and
(b) The investment fund or
trust shall not:
1. Except to the extent
authorized in subparagraph (1)(a)3. of this rule, acquire or hold investments
in the form of stripped or detached interest obligations;
2. Engage in the purchase or sale of interest
rate futures contracts;
3. Purchase
securities on margin, make short sales of securities or maintain a short
position; or
4. Otherwise engage in
futures, forwards or options transactions, except that forward commitments may
be entered into for the express purpose of acquiring securities on a
when-issued basis.
(c) On
an aggregate basis, investments in such funds or trusts shall not exceed:
1. Thirty (30) percent of the bank's
statutory capital base per fund/trust family or sponsor; and
2. Sixty (60) percent of the bank's statutory
capital base for all funds combined.
(d) An aggregate limitation of one hundred
twenty (120) percent of the bank's statutory capital base shall be allowed for
all funds combined if the funds or trusts:
1.
Are managed so as to maintain the fund or trust shares at a constant net asset
value;
2. Are no-load;
and
3. Are rated in the highest
rating category by a nationally recognized rating service.
(4) Asset-Backed Securities.
A bank may purchase asset-backed securities repayable in both
interest and principal which are issued under any of the following:
(a) Governmentally sponsored programs which
are fully collateralized by obligations fully guaranteed as to principal and
interest by a governmental entity to the same extent as direct obligations of
the governmental entity which is the guarantor;
(b) Private programs which are fully
collateralized by obligations fully guaranteed as to principal and interest by
a governmental entity to the same extent as direct obligations of the
governmental entity which is the guarantor; or
(c) Other private programs in amounts which
do not exceed twenty-five (25) percent of the bank's statutory capital base for
each issuer, provided the issue:
1. Is in
registered form;
2. Is
collateralized by assets which could be owned directly by the bank and the
investing bank has analyzed and understands the underlying collateral
characteristics of the investment; and
3. Is investment quality or the credit
equivalent of investment quality. Investment quality means that a rating in one
of the four highest categories has been assigned to the securities by a
nationally recognized rating service and, as such, are not predominantly
speculative in nature. If the securities are not rated by a nationally
recognized rating service, then credit equivalency shall be determined by the
methods in subsection (e) of this rule.
(d) Aggregate investment in asset backed
securities under subsection (c) by all issuers shall not exceed fifty (50)
percent of the bank's statutory capital base unless approved by the
Department.
(e) Before the purchase
of any asset-backed securities, the investing bank shall perform a due
diligence suitability analysis to determine whether the asset-backed securities
are suitable for purchase relative to the bank's asset liability position,
sensitivity to market risk, and its liquidity exposure. Further, before the
purchase of any asset-backed securities under subsection (c), the investing
bank shall include in the due diligence suitability analysis an evaluation of
whether the asset-backed securities are suitable for purchase relative to the
bank's tolerance for credit risk. A periodic update of the suitability analysis
shall be performed by the bank at least as frequently as annually during the
term of the investment. The initial and subsequent documentation of the
suitability analysis shall be in written form and maintained in the bank's
files.
(5) Interest-Only
("IO") Securities.
(a) Nothing contained
herein shall permit the purchase of investments in the form of stripped or
detached IO obligations. An exception to this rule is that securities issued
under the U.S. Treasury's Separate Trading of Registered Interest and Principal
(STRIP's) program, which are offered in book entry form and which are direct
obligations of the U.S. Government, as authorized by Subtitle III, Chapter 31
of Title
31 USC, may be purchased without limitation.
(b) Purchasing or trading any other type of
IO securities may receive prior written approval from the Department for
institutions demonstrating technical expertise and policies sufficient to
promote safe and sound use of such investments as part of prudent investment
strategies.
(6) Futures,
Forwards, Option Contracts and Interest Rate Swaps.
(a) Futures, forwards, option contracts,
interest rate swaps, and direct and indirect investments associated with any
security which otherwise constitutes a permissible investment under provisions
of this rule may be approved in writing by the Department for banks
demonstrating technical expertise and policies sufficient to promote safe and
sound use of such investments as part of prudent investment
strategies.
(b) Notwithstanding the
limitation in subparagraph (6)(a), a bank may invest in derivative instruments,
including forwards and interest rate swaps, without the approval of the
Department so long as the investment is solely for the purpose of managing
interest rate risk. Such investment must be denominated in U.S. dollars, have a
contract maturity of fifteen (15) years or less, and be based on domestic
interest rates or the Secured Overnight Financing Rate (SOFR), or similar
replacement rate for the U.S. dollar-denominated London Interbank Offered Rate
(LIBOR). A bank must adhere to safe and sound banking practices in making such
investments.
(7) Trust
Preferred Securities.
Trust preferred securities, generally, may be defined as
issues of cumulative preferred securities, containing characteristics of both
debt and equity securities, where the issuer is normally a business trust
formed by a corporate issuer. The corporate issuer issues debt to the trust in
the form of deeply subordinated debentures. The securities represent undivided
beneficial interests in the assets of the issuer trust, and distributions by
the issuer trust are guaranteed by the corporate issuer to the extent of
available funds of the issuer trust. The trust preferred securities may or may
not be rated, but in any event must be scrutinized under the suitability
analysis in this rule as if they were a loan being underwritten by the
purchasing bank. Trust preferred securities are authorized investments for a
state bank subject to the terms and conditions contained in this paragraph 7. A
bank's investment in a closed or open-end investment fund, consisting of trust
preferred securities, shall be subject to the terms and conditions contained in
Rule 80-1-4-.01,
paragraph 3. entitled "Investment Funds". A security backed by trust preferred
securities shall be deemed an asset-backed security and shall be subject to the
terms and conditions contained in Rule
80-1-4-.01, paragraph 4. entitled
"Asset-Backed Securities".
(a) The
bank's investment in each corporate issuer of trust preferred securities, that
is, in each entity that controls an issuer trust (other than in a fiduciary
capacity), shall not exceed fifteen (15) percent of the bank's statutory
capital base.
(b) The bank's
aggregate investment in trust preferred securities shall not exceed the bank's
policy limits or one hundred (100) percent of the bank's statutory capital
base, whichever is less.
(c) The
issuance of the trust preferred securities shall be registered under the
Securities Act of 1933, as amended, shall be eligible for resale pursuant to
Securities and Exchange Commission Rule 144A, or the securities shall be
capable of being sold with reasonable promptness at a price which corresponds
to their fair value. As to this requirement, if an issuance is not registered,
eligible for resale, or readily marketable, it must meet a suitability analysis
test as provided in (e) of this rule;
(d) The securities shall be of investment
quality or the credit equivalent of investment quality. Credit equivalency
shall be determined by the methods in subparagraph (e) of this rule. Investment
quality means that a rating in one of the four highest categories has been
assigned to the securities by a nationally recognized rating service and, as
such, are not predominantly speculative in nature;
(e) Before the purchase of any trust
preferred securities, the investing bank shall perform a due diligence
suitability analysis to determine whether the trust preferred securities are
suitable for purchase relative to the bank's tolerance for credit risk, asset
liability position, sensitivity to market risk, and its liquidity exposure.
Such analysis shall include, at a minimum, the following:
1. A complete credit analysis, including cash
flow projections, sufficient to determine that the issuer is creditworthy and
thus has the ability to meet the debt repayment schedule;
2. A credit underwriting analysis sufficient
to determine that the securities meet the credit underwriting criteria set
forth by the bank's lending policies;
3. A marketability analysis, sufficient to
determine whether or not the securities may be sold with reasonable promptness
at a price corresponding to their fair value;
4. The documentation of the suitability
analysis shall be in written form and maintained in the bank's files;
5. A periodic update of the suitability
analysis shall be performed by the bank at least as frequently as annually
during the term of the investment; and
(f) The bank shall obtain and monitor the
securities' market values on an ongoing basis.
(g) The bank's written policies and
procedures shall adequately address the various risks inherent in these
securities including credit risk, price or market risk, interest rate risk, and
liquidity risk.
(h) The bank shall
notify the Department in writing of any investment in trust preferred
securities where the issuer is not a bank or bank holding company as defined in
O.C.G.A. §
7-1-605.
(8) Tier 2 Subordinated Debt Securities.
Tier 2 subordinated debt securities are subordinated notes
issued by banks or bank holding companies, as defined in O.C.G.A. §
7-1-605, intended to qualify as
Tier 2 capital under federal regulatory capital guidelines. The subordinated
debt securities may or may not be rated, but in any event must be scrutinized
under the suitability analysis in this rule as if they were a loan being
underwritten by the purchasing bank. Tier 2 subordinated debt securities are
authorized investments for a state bank subject to the terms and conditions
contained in this paragraph. The permissibility of such investment may be
determined pursuant to this paragraph or pursuant to any other paragraph or
paragraphs of this rule to the extent the terms of such investment conform to
such other paragraph or paragraphs.
(a) The bank's investment in each corporate
issuer of Tier 2 subordinated debt securities shall not exceed fifteen (15)
percent of the bank's statutory capital base. For purposes of determining
compliance with this requirement, investments in Tier 2 subordinated debt
securities issued by a bank shall be aggregated with securities issued by such
bank's holding company.
(b) The
bank's aggregate investment in Tier 2 subordinated debt securities shall not
exceed the bank's policy limits or one hundred (100) percent of the bank's
statutory capital base, whichever is less. For purposes of determining
compliance, this aggregation requirement applies to all subordinated debt
investments, whether purchased pursuant to this paragraph or any other
paragraph of this rule.
(c) The
issuance of the Tier 2 subordinated debt securities shall be registered under
the Securities Act of 1933, as amended, shall be eligible for resale pursuant
to Securities and Exchange Commission Rule 144A, or the securities shall be
capable of being sold with reasonable promptness at a price which corresponds
to their fair value as determined by the bank following due diligence. In the
alternative, the issuance can satisfy the suitability analysis test as provided
in subsection (e) of this rule.
(d)
The securities shall be of investment quality or the credit equivalent of
investment quality. Investment quality means that a rating in one of the four
highest categories has been assigned to the securities by a nationally
recognized rating service and, as such, are not predominantly speculative in
nature. If the securities are not rated by a nationally recognized rating
service, then credit equivalency shall be determined by the methods in
subsection (e) of this rule.
(e)
Before the purchase of any Tier 2 subordinated debt securities, the investing
bank shall perform a due diligence suitability analysis to determine whether
the Tier 2 subordinated debt securities are suitable for purchase relative to
the bank's tolerance for credit risk, asset liability position, sensitivity to
market risk, and its liquidity exposure. Such analysis shall include, at a
minimum, the following:
1. A complete credit
analysis, including pro forma cash flow analysis, sufficient to determine that
the issuer is creditworthy and thus has the ability to meet the debt repayment
schedule;
2. A marketability
analysis, sufficient to determine whether or not the securities may be sold
with reasonable promptness at a price corresponding to their fair value, which
analysis may be supported by input from the placement agent for such
securities;
3. The documentation of
the suitability analysis shall be in written form and maintained in the bank's
files; and
4. A periodic update of
the suitability analysis shall be performed by the bank at least as frequently
as annually during the term of the investment.
(f) The bank shall obtain and monitor the
securities' market values on an ongoing basis.
(g) The bank's written policies and
procedures shall adequately address the various risks inherent in these
securities including credit risk, price or market risk, interest rate risk, and
liquidity risk.
(h) Subordinated
notes issued by banks or bank holding companies, as defined in O.C.G.A. §
7-1-605, shall not be deemed to be
impermissible investments solely by virtue of the fact that the issuer has not
obtained regulatory confirmation that proceeds from the issuance of the
securities will qualify as Tier 2 capital.
(9) All Other Securities.
A bank may invest in such other securities or funds as the
Department may approve, upon a finding that the securities are marketable under
ordinary circumstances, with reasonable promptness at a price which corresponds
to their fair value, approval shall be in writing and subject to such
limitations as the Department may specify. This requirement for departmental
approval shall not apply where the statutory capital base of the purchasing
bank exceeds $ 20,000,000. However, in such instances, such securities may be
purchased only in an amount which does not exceed fifteen (15) percent of the
bank's statutory capital base.
(10) In the event a bank's investment in
securities no longer conforms to this rule but conformed when the investment
was originally made, the bank shall provide written notification to the
Department regarding the nonconforming investment within 30 days of discovering
the nonconforming investment or 120 days of the investment becoming
nonconforming, whichever event occurs first. In the event a bank wishes to hold
the nonconforming investment, the bank must submit a letter form application to
the Department including the institution's current assessment of the condition
of the nonconforming security and supporting documentation that details the
cause of the deterioration, severity of the deterioration, and resulting
accounting treatment by the institution. Upon review of the application, the
Department may request additional information if it determines such additional
information is necessary in order to fully and completely evaluate the
application. After completion of its review, the Department shall either
approve, conditionally or otherwise, or deny such application in
writing.
(11) A bank may sell a
nonconforming investment without Department authorization but only if it
provides the Department with written notice no later than five (5) business
days after the sale.
Notes
Ga. Comp. R.
& Regs. R. 80-1-4-.01
O.C.G.A. §§
7-1-61,
7-1-288.
Original Rule entitled "All Investment Securities Not Specifically
Authorized by Statute" adopted. F. and eff.
June 30, 1965.
Amended: F. Aug. 21,
1967; eff. Sept. 10,
1967.
Repealed: New Rule entitled "Other Approved Investment
Securities" adopted. F. June 9, 1972; eff.
June 29,
1972.
Repealed: New Rule entitled "Investment Securities"
adopted. F. Aug. 28, 1975; eff.
Sept. 17,
1975.
Amended: F. July 13,
1981; eff. August 2,
1981.
Amended: F. Aug. 17,
1983; eff. Sept. 6,
1983.
Repealed: New Rule of same title adopted. F.
Oct. 12, 1989; eff.
Nov. 1, 1989.
Amended: F. July 11,
1994; eff. July 31,
1994.
Amended: F. Aug. 26,
1997; eff. Sept. 15,
1997.
Amended: F. July 12,
1999; eff. August 1,
1999.
Amended: F. Dec. 18,
2000; eff. Jan. 7,
2001.
Repealed: New Rule entitled "Permissible Investments
and Limitations" adopted. F. Oct. 22,
2001; eff. Nov. 11,
2001.
Amended: F. Aug. 15,
2007; eff. Sept. 4,
2007.
Amended: F. June 10,
2014; eff. June 30,
2014.
Amended: F. July 7,
2021; eff. July 27,
2021.
Amended: F. July 7,
2022; eff. July 27,
2022.
Amended: F. July 7,
2023; eff. July 27,
2023.
Amended: F. July 12,
2024; eff. Aug. 1,
2024.
