TITLE XXXV BANKS AND BANKING; LOAN ASSOCIATIONS; CREDIT UNIONS
CHAPTER 383-B DEPOSITORY BANK ACT
ARTICLE 3 Banking Business
Section 383-B:3-303
383-B:3-303 Loans and Investments. –
(a)(1) A depository bank shall at all times maintain a reserve in an amount that is not less than the minimum reserve required by the Federal Reserve System.
(2) A depository bank may invest the balance of its banking assets (excluding assets held in a fiduciary capacity) in the classes of securities, loans, derivatives, and other investments described in this section in addition to any other authorities set forth in this chapter, subject to any limitations imposed by the Federal Deposit Insurance Corporation. All investments shall be made in a prudent manner consistent with federal and state laws.
(3) A depository bank's board of directors shall establish a written investment policy that addresses, at a minimum, investment quality parameters, investment mix and diversification, investment maturities, derivative exposure, and delegation of authority to officers and committees responsible for administering the portfolio. The board shall review and ratify the policy annually or more frequently if circumstances so warrant.
(4) Loans shall be made based on the creditworthiness of the borrowers and guarantors, if any, the value of collateral, and other relevant factors relating to the repayment of the loans in accordance with their terms. If the value of collateral is relevant to the repayment of a loan to a depository bank, the collateral shall be appraised on the basis of commercially reasonable standards.
(5) All investments in securities shall be supported by a documented credit and risk analysis. The analysis shall be applied to securities as a part of a pre-purchase and ongoing due-diligence process. Assessments of creditworthiness and risk shall not be solely reliant on external credit ratings, if any, provided by one or more NRSROs. Any investment in a debt security shall meet the investment grade debt security standard.
(6) A depository bank shall keep a record of all loans and securities investments of every description made by the bank in such form as the commissioner may approve, which shall show the loans or securities investments made under this article and shall indicate such detail respecting the loans or securities investments as the commissioner shall direct. This record shall be periodically submitted to the board of directors for its review and to the commissioner at each examination required by law. The loans or securities investments shall be classified in this record in such manner as the commissioner or other regulatory authorities shall direct.
(7)(A) A depository bank shall adopt prudent policies with respect to its lending activities. The total liabilities of a person for money borrowed from a depository bank shall not exceed the limitation prescribed for national banks under federal law. No depository bank shall make a loan or loans to a borrower and its affiliates, if any, or in any group of a similar type of loans, that would pose a risk to the safety and soundness of the bank.
(B) No depository bank shall make a loan or discount on the security of the shares of stock or other equity interests, nor be the purchaser or holder of the shares or interests unless the security or purchase shall be necessary to prevent loss upon a debt previously contracted in good faith; and shares or interests so purchased or acquired shall within 6 months after their acquisition or purchase be sold or disposed of at public or private sale, unless the time is extended by the commissioner.
(C) A depository bank shall not accept its own capital stock or the capital stock of a bank holding company which controls the depository bank as collateral.
(D) A depository bank may make a loan to an executive officer or director and accept an executive officer or director as surety, endorser, or guarantor of loans to other persons if the loan is approved in accordance with Federal Reserve Board Regulation O. Loans made under this section shall be on terms not more favorable than those afforded other borrowers.
(E) Any depository bank which requires or accepts moneys for deposit in escrow accounts maintained for the payment of taxes or insurance premiums related to loans on property secured by real estate mortgages shall pay interest in the moneys so held in such accounts. During the 6-month period beginning on April 1 of each year, such interest shall be paid at a rate of not less than the National Deposit Rate for Savings Accounts as published in the month of January of the same year by the Federal Deposit Insurance Corporation. During the 6-month period beginning on October 1 of each year, such interest shall be paid at a rate of not less than the National Deposit Rate for Savings Accounts as published in the month of July of the same year by the Federal Deposit Insurance Corporation.
(F) Upon payment in full of the outstanding principal, interest, and other charges due on any loan made by any depository bank or subsidiary, the depository bank or subsidiary, or the assignee or successor in interest thereto, if any, shall plainly mark the note or a copy thereof with the words "PAID IN FULL" or "CANCELLED" and release or provide the borrower evidence to release any mortgage or security instrument no longer securing any indebtedness to the depository bank or subsidiary, or the assignee or successor in interest thereto, if any. If the original note is retained by the depository bank or subsidiary, the original shall be returned within a reasonable period of time upon the written request of the borrower.
(b)(1)(A) Loans directly secured by mortgages on residential, commercial, or publicly-owned real estate.
(B) The following shall be construed to be real estate for the purposes of subsection A: Buildings on land at Hampton in the county of Rockingham owned by lessees of real estate owned by the town of Hampton and leased by the town to Hampton Beach Improvement Company or directly to other lessees, together with those owned by sublessees or lessees of Hampton Beach Improvement Company or the town of Hampton, and improvements, buildings and structures on land within national forests within this state upon which the mortgagor holds a term special use permit from the United States Forest Service of not less than 20 years' duration.
(C) For the purposes of subsection (A), the following described classes of property appearing in the fixed capital accounts of electric, telephone, gas, and water utilities operating in this state (as more particularly defined in the classification of accounts of utilities prescribed by the public utilities commission), when all of these classes of property are included in a blanket mortgage together with the utility's franchise to operate as a public utility in this state, shall be construed to be real estate: (i) electric utilities: land, structures, generating equipment for steam, hydro, internal combustion, wind, solar, or any new technology, transmission and distribution equipment, and unfinished construction; (ii) telephone utilities: land, structures, central office equipment, station equipment, station wiring, poles, conduits, cables, wires, other radio-telephone plant, and unfinished construction; (iii) gas utilities: land, structures, production equipment, distribution equipment, and unfinished construction; and (iv) water utilities: land, structures, production equipment, transmission and distribution equipment, and unfinished construction.
(D) Improvements, buildings, and structures on land leased from any person upon which the mortgagor holds a lease shall be construed as real estate for purposes subsection (A).
(E) Equipment, machinery, and furnishings, which are declared by the mortgagor to have been affixed to and become a part of the real estate, shall be construed as real estate for purposes of subsection (A).
(F) Loans secured by mortgages on real estate without respect to the value of the real estate if a department or agency of the United States or a federal government-sponsored enterprise has insured, or made commitment to insure, the notes and bonds, provided the laws of the United States entitle the mortgagees to receive payment of the insurance in cash or debentures issued by the department or agency of the United States or the federal government-sponsored enterprise which are fully guaranteed as to principal and interest.
(G) Loans secured by tangible personal property of any kind or description.
(2)(A) Notes secured by any deposit account in any bank, the deposits of which are insured by the Federal Deposit Insurance Corporation, provided that the investment shall not be in excess of 100 percent of the withdrawal value of the account.
(B) Notes secured by the policy of a life insurance company with a cash surrender value, provided that the security shall have at all times a market or cash value of at least 10 percent in excess of the notes while held by the bank.
(C) Notes secured by the authorized obligations of the United States of America, or notes secured by the authorized notes and bonds of this state or any of its state entities.
(D) Notes secured by securities which are traded on an exchange and are ranked among the 3 highest ratings of any NRSRO, or notes secured by other securities which are legal investments in this state, provided that the market price of the securities shall at all times be at least 20 percent in excess of the amount due on the notes while held by the bank.
(E) Notes eligible for insurance or guaranties by a department or agency of the United States or a federal government-sponsored enterprise which is designated by written ruling of the commissioner, provided a contract of insurance or guaranty exists between the holder and the department or agency of the United States or the federal government-sponsored enterprise.
(F) Notes which are guaranteed as to payment of at least 80 percent of their outstanding principal from time to time by the state of New Hampshire or the New Hampshire Higher Education Assistance Foundation.
(G) Unsecured loans based on the creditworthiness of the borrower.
(c)(1) The obligations of the United States of America, or those for which the full faith and credit of the United States is unconditionally pledged to provide for the payment of interest and principal.
(2) The authorized obligations issued or guaranteed by any department or agency of the United States or a federal government-sponsored enterprise that are designated as an authorized investment of the commissioner by rule or order.
(3) The authorized obligations of this state or any state entity of this state, provided:
(A) The obligations of this state or state entity are backed by the issuer's ability to levy taxes for the repayment of principal and interest.
(B) Obligations secured by the revenues of the state entity are rated among the first 4 ratings of any NRSRO.
(C) The obligations of any state entity, purchased or acquired prior to January 1, 1999 shall be a legal investment, notwithstanding the fact that an obligation is not backed by the issuer's ability to levy taxes for the repayment of principal and interest as required by paragraph A.
(4) The authorized bonds and notes of any other state, commonwealth or territory of the United States or any state entity of another state, provided:
(A) The direct obligations of any state, commonwealth or territory of the United States or any state entity thereof are backed by the issuer's ability to levy taxes for repayment of principal and interest and are rated among the first 3 ratings of any NRSRO.
(B) Obligations secured by the revenue of any state entity are rated among the first 3 ratings of any NRSRO.
(5) The authorized bonds and notes issued or guaranteed by other sovereign nations, provided the bonds or notes are rated among the 3 highest ratings of any NRSRO, and the bonds or notes are repayable as to principal and interest in United States currency within this country.
(d)(1) Any investment grade debt security issued, assumed, or guaranteed by an entity organized in the United States of America, provided it is rated among the 3 highest ratings of any NRSRO. A convertible investment grade debt security of a lesser rating will be legal if the common stock would otherwise qualify.
(2) Any preferred stock issued, assumed or guaranteed by an entity organized in the United States, provided it is rated among the 3 highest ratings of any NRSRO.
(3) Any common stock or senior security convertible into common stock of an entity organized in the United States of America is lawful provided:
(A) The stock is listed on an exchange and is ranked among the 3 highest ratings of any NRSRO.
(B) At the time of purchase, any common stock investment under this subsection when added to the book value of all other common stock securities presently owned of the same entity shall not exceed 7 percent of a bank's capital and surplus, except for stock holdings in a Federal Home Loan Bank or Federal Reserve Bank.
(4)(A) An investment grade debt security issued, assumed or guaranteed by an entity organized under the laws of this state or carrying on its principal activities within this state, provided the entity shall have, at the date of investment, a net worth of at least $1,000,000 and in at least 4 of the 5 years next preceding the date of investment, the net income available for interest plus the federal income tax of the entity shall have been not less than twice the interest on its obligations.
(B) The dividend-paying capital stock of an entity organized under the laws of this state or carrying on its principal activities within this state, provided all securities, if any, senior to the stock are legal investments hereunder, and the entity shall have, at the date of the investment, a net worth of at least $1,000,000 in at least 4 of the 5 years next preceding the date of investment, the entity shall have earned net income available for dividends on the entire outstanding issue of the stock in question of not less than 4 percent on the par or stated value of the stock and the depository bank shall hold no more than 5 percent of the outstanding stock of the entity.
(5)(A) The securities of a bank or bank holding company incorporated in the United States, provided the bank or bank holding company shall have capital and surplus of at least $50,000,000, the capital and surplus shall represent not less than 4 percent of the total assets in at least 4 of the 5 years immediately preceding investment, net earnings shall have averaged not less than 0.4 percent of average total assets over the same 5 years immediately preceding investment, and the total loans to total assets shall not be greater than 80 percent.
(B) The securities or special deposits of a bank or trust company chartered under the laws of this state and doing business in this state, and the capital notes and the capital stock of any national bank or federal savings bank having a principal office in this state; but the amount of the notes or stock or special deposits held by a depository bank as an investment and as collateral for loans shall not exceed 25 percent of the total capital and surplus of the bank and the securities of any New Hampshire bank holding company which is registered as a bank holding company with the board of governors of the Federal Reserve System, but the amount of capital stock held by a depository bank in legal form or represented by voting trust certificates as an investment and as collateral for loans shall not exceed 25 percent of the capital stock of the New Hampshire bank holding company.
(6) The following types of investment trust shares if listed on an exchange or authorized for sale in this state by the bureau of securities regulation of the secretary of state.
(A) The shares of any management type investment company, either open-end or closed-end, provided if the company acts as its own investment manager, it shall have been in business for at least 5 years, have at least $50,000,000 of net assets and have paid dividends for at least 4 of the 5 years immediately preceding investment, and in the event that the company employs outside investment management, then those investment managers shall have a total of at least $100,000,000 under management and the company shall have been in business for at least 5 years, have net assets of $50,000,000 and have paid dividends for at least 4 of the 5 years immediately preceding investment.
(B) The shares of any management type investment company that is a member of a group of 3 or more mutual funds under the same investment manager, provided the manager has at least $100,000,000 of assets under management and the company has at least $10,000,000 of net assets.
(C) Units in unit investment trusts with principal of at least $1,000,000 if authorized for sale in this state.
(7)(A) Acceptances of member banks of the Federal Reserve System of the times and maturities made eligible for rediscount and purchased by Federal Reserve Banks.
(B) Advances of federal funds to banks qualifying as cash depositories under RSA 383-B:3-301(k), which the banks agree to repay one or more business days later, provided that total advances of federal funds under this paragraph and any other authority shall not exceed 10 percent of the depository bank's assets and that the total of the advances by a depository bank to any one bank shall not exceed 5 percent of the latter's capital and surplus. The agreement to repay may have a specific maturity date or may be open-ended. An open-ended agreement has no specific maturity date but requires repayment on any date that is specified by either the depository bank or borrowing bank. Notwithstanding the foregoing, advances of federal funds that comply with the requirements of Federal Reserve Board Regulation F, 12 C.F.R. section 206, as amended from time to time, shall be deemed to fulfill the requirements of this paragraph and qualify as legal investments for depository banks.
(8) Loans made by an entity qualified to originate a loan in which other qualified entities may participate severally with the originating lender in making the loan, and in which they have a part interest. The entity originating the loan shall be referred to as the originating lender and any entity participating in the loan shall be referred to as a participating lender. Depository banks, national banks, federal savings banks, foreign depository banks, the small business administration, federally-chartered corporations which are agencies or instrumentalities of the United States, the New Hampshire business finance authority, trustees of pension trusts and retirement funds, credit unions, and insurance companies shall be deemed qualified to be originating lenders or participating lenders. New Hampshire entities, nonprofit colleges, and nonprofit trusts and funds shall be deemed qualified to be participating lenders, in participation with any of the originating lenders. The participation shall be evidenced by an agreement and participation certificates. The loan shall meet the underwriting standards of each originating or participating depository bank.
(9) The capital stock, obligations, or other securities of real estate development entities organized under the laws of this state, provided:
(A) At least 51 percent of the capital stock of the entity is held by one or more depository banks; and none of the capital stock is owned by any director, officer, employee, or incorporator of a depository bank.
(B) The activities of the entity consist solely of one or more of the following: engaging in large-scale residential housing projects of all kinds, including acquisition, subdivision and development of real estate, construction of residential housing of all kinds and related facilities, or resale to others for the construction. For purposes of this subsection, alarge-scale residential housing projectmeans a development containing at least 48 home building lots or a building or buildings containing at least 48 dwelling units; engaging in urban redevelopment projects of all kinds; and engaging in projects to provide housing for lower-income families; engaging in commercial and industrial real estate ventures of direct community benefit, as approved by the commissioner and in projects for the preservation or restoration of historically or architecturally significant buildings or structures; and activities reasonably incidental to the activities described in this subsection.
(C) Not more than $10,000,000 or 5 percent of the assets of a depository bank, whichever is less, are invested in securities authorized for investment by this subsection, and not more than 2 1/2 percent of the assets of a depository bank are invested in the securities of a single real estate development entity which qualifies for the investment under this subsection.
(D) No real estate development entity shall acquire for itself any opportunity to engage in any project or venture permitted under subsection (B) if a depository bank which is a stockholder of the entity has previously rejected a written application for a mortgage loan on the security of the same project or venture, unless it appears that the mortgage loan so rejected failed to qualify as a legal investment under this chapter, or unless the applicant for the mortgage loan consents in writing to the acquisition of the opportunity by the real estate development entity.
(E) The authority to invest in securities of certain real estate development entities shall be limited to real estate holdings and development located in New Hampshire.
(10) A depository bank may invest in securities which are not authorized investments under this section but are prudent investments, provided the securities being purchased under the authorization of this section do not, when added to all other securities then owned by the depository bank, the purchase of which would not then be authorized by the other sections of this section, exceed 7 1/2 percent of its assets. Any security which at the time of its purchase constitutes a legal investment under the laws and conditions then existing may be retained under the authority of this subsection, notwithstanding the fact that because of conditions arising subsequent to the purchase of the security, its purchase or holding might not then be legal. Any security held which becomes unlawful because of changes in the law relating to legal investments may also be retained under the authority of this subsection.