Hi There,

I have a question related to calculating relationship exposure for legal lending limit purposes. Our community bank is regulated by the Florida Office of Financial Regulation (FLOFR). If there are any articles, guidance, links, etc. that you could provide as a reference, I would greatly appreciate it.

The following is an article that I found in the RMA journal that I found very helpful, but, my understanding is the State of Florida statutes do not calculate relationship exposure the same way as this article.


While previously I thought that a guarantee played a significant role in determining if something was related for relationship purposes, it now appears that percentage ownership and/or control, along with a common source of repayment (primary?) plays a bigger role. For example, reducing a guarantee does not reduce exposure.

Imagine the following scenario:
(1) Dr. and Mrs. Smith own a real estate holding company (50%/50%) that owns a dental office that ABC Bank has a loan and mortgage on. Dr. Smith owns 100% of the underlying dental operating company. Dr. Smith wants to sell 50% of his operating company to one of the dentists he employes (Dr. Jones) and ABC Bank wants to finance the sale of 50% of the operating company for Dr. Jones. ABC Bank has no loans to the operating company and Dr. Jones will have no ownership interest in the real estate holding company. Imagine the loan structured two different ways:
(A) A loan to Dr. Jones (The Borrower) and no personal guarantee from Dr. Smith.
(B) A loan to Dr. Jones (The Borrower, with a personal guarantee from Dr. Smith (so Dr. Smith could make payments in the event Dr. Jones couldn't and he could purchase back his 50% interest which is held as collateral by ABC Bank (closely held stock).

Am I correct in the fact that regardless of whether Dr. Smith guarantees the new loan to Dr. Jones, these two loans should be aggregated for total exposure purposes. My understanding is because both loans share a common source of repayment (cash flow from operations from the dental practice they should be aggregated, despite the different ownership in both Borrowers.

Thank you in advance.