On July 1, the most significant change to the legal landscape for Iowa banks in a generation occurred when new amendments to Iowa Code Chapter 524 became effective. For the next several weeks, Dickinson Law will cover some of the most significant changes and how they affect Iowa banks.
Investments in Real Estate for Purposes of Economic or Community Development
Iowa Code Section 524.802(13) has been on the books for a number of years, but has now been updated and clarified with the recent modernization of, and amendment to, the Iowa Banking Act. The previous provision expressly allowed banks the general power to acquire, hold and improve real estate for the sole purpose of economic or community development, but said power was and continues to be subject to certain conditions.
The recent amendment to the Iowa Banking Act now provides that a state bank no longer has to obtain prior approval from the Superintendent of Banking with regards to the same, but does require notification to the Superintendent via a 30 day prior written notice to the same.
If the Superintendent does not object within 30 days from said notice, then the bank has the ability to move forward to acquire, hold and improve the real property for economic or community development. You should be aware that a bank is still limited to 15% (lending limit) of the bank’s aggregate capital for all acquisitions as previously provided for.
The amended section now also provides some clarity in defining community development and included “public welfare investment” as defined in 524.901(7)(a) and under 12 USC §24 (and implementing regulations). In general, an investment as allowed under the amended Iowa Code, might qualify for CRA (Community Reinvestment Act) credit as long as it addresses low to moderate income individuals or low to moderate income geographies. For further guidance and information please use the link below.
eCFR :: 12 CFR Part 24 — Community and Economic Development Entities, Community Development Projects, and Other Public Welfare Investments
Before proceeding with any investment pursuant to Iowa Code 524.802(13), feel free to contact us for counsel and guidance in determining if the real estate acquisition would qualify under 524,901 and 12 USC § 24 and 25)
Other Real Estate Owned (“OREO”)
The previous version of Iowa Code Section 524.910(2) allowed a state bank to own OREO for only five years. Any extension of that time limitation previously required approval from the Superintendent, and usually came with a requirement that the bank had to charge-off a certain percentage of the loan balance.
The amended code now sets a maximum time certain for ownership of OREO of 10 years, which mirrors federal law. If bank management wants to continue to own the OREO, bank management could consider whether it may qualify under 524.802(13) as community or economic development investments.
That said, extreme prudence should be used in considering and implementing the same, as waiting until the 10 year time frame expires could prove problematic. Further, it is important to keep in mind that removing the loan balance from the bank’s books does not qualify as disposal of OREO.