
    Mortgage Loans to Bank Directors.
    
      Banks and banking — Directors—Loans—Bond and mortgage loans — Act of June U, 1901.
    
    Lending money to a director, even when secured by a bond and mortgage, is a loan made to the director within the contemplation of section 1 of the Act of June 14, 1901, P. L. 561, and such loans must be included in the amount of loans made to directors.
    Department of Justice. Opinion to Hon. John W. Morrison, First Deputy Commissioner of Banking.
    June 19, 1923.
   Brown, Dep. Att’y-Gen.,

Your inquiry as to whether or not loans to directors of a bank on unencumbered improved real estate situated in this State, secured by a bond and mortgage, shall be included in the amount of loans to such directors has been received by this department. The Act of June 14, 1901, P. L. 561, in section 1, provides: “That no director of any banking institution, trust company, or savings institution, having capital stock, heretofore or hereafter incorporated in this Commonwealth, shall receive as a loan an amount greater than 10 per centum of the capital stock actually paid in, and surplus; and the gross amount loaned to all officers and directors of such corporations, and to the firms or houses in which they may be interested, directly or indirectly, shall not exceed at any time the sum of 25 per centum of the capital stock paid in, and surplus.”

When a director of a bank secures money from the bank and gives as security a bond and mortgage, it is money received from the bank as a loan. The act makes no distinction in the character of the loans, neither does it mention anything about the security to be given by the borrower. It clearly provides that no director shall receive as a loan an amount greater than 10 per centum of the. capital stock actually paid in and the surplus. This includes loans of all kinds made to a director, mortgage as well as any other.

The object was to limit the liability of any director to 10 per cent, of the amount of capital stock and surplus, to the end that the bank should not depend upon the credit of any one of its directors for more than 10 per cent, of the amount of its capital stock and surplus.

In an opinion by Attorney-General Hensel, given to your department April 27, 1892, and found in 12 Pa. C. C. Reps. 40, it was held in reference to section 21 of the Act of May 13, 1876, P. L. 160: “I am of the opinion that it is a substantial compliance with section 21, if no corporation under that act invests or loans more than 10 per centum of its capital upon the credit, in any form, of any one of its directors.” Lending money to a director, even when secured by a bond and mortgage, is a loan made to the director and comprehended by the act.

You are, therefore, advised that loans to directors, secured by bond and mortgage, must be included in the amount of loans made to such directors.

Prom C. P. Addams, Harrisburg, Pa.  