SECTION 85:25-3-46. Loans to officers, directors and affiliated persons

(a)   No insured institution or subsidiary thereof may, either directly or indirectly, make a loan to any affiliated person of such institution or purchase such a loan, except for loans in the ordinary course of business of such an institution or subsidiary which do not involve more than the normal risk of collectibility or present other unfavorable features, and which do not exceed the loan amount which would be available to members of the general public of similar credit status applying for loans, of the following types:

(1)   Loans secured by the principal residence of an affiliated person;

(2)   Loans secured by savings accounts maintained by the affiliated person at the institution; and

(3)   Loans for constructing, adding to, improving, altering, repairing, equipping, or furnishing the principal residence of the affiliated person, loans in the form of overdraft protection for NOW accounts, loans for payment of education expenses, consumer loans, and extensions of consumer credit in connection with credit cards.

(b)   A loan described in (a)(1) and (a)(3) of this Section must be approved in advance by a resolution duly adopted after full disclosure by at least a majority (with no director having an interest in the transaction voting) of the entire board of directors of such institution. Full disclosure must include whether the loan is made on substantially the same terms, including interest rate and collateral, as those prevailing at the time for comparable loans to members of the general public.

(c)   An institution may make loans described in (a) of this Section at an interest rate not below its current cost of funds, including all savings accounts and borrowings [except that in the case of a loan secured by a savings account, the interest rate shall be at least one percent above the rate of return on the savings account]: Provided, That the resolution required by (b) of this Section must set forth:

(1)   The institution's current cost of funds, including the elements of its computation; and

(2)   A justification of the more favorable rate, if the loan is to an affiliated person other than a salaried officer or employee of the institution or its subsidiary.

(d)   With respect to a loan described by (a) of this Section made to a salaried officer or employee of the institution or its subsidiary, the approval requirement of (b) of this Section will be satisfied if the loan conforms with a blanket-preapproval resolution of the board specifying the terms on which loans may be made to all officers or employees, or a class of such officers or employees, and the loan documents set forth the institution's current cost of funds, including the elements of its computation. An insured institution may not use a blanket-preapproval resolution to make loans described by (a)(3) of this Section to a single affiliated person in excess of $100,000 in the aggregate.

(e)   An insured institution may extend credit for commercial purposes to an affiliated person which may in no event exceed an aggregate of $100,000. Any such extension of credit shall not involve more than the normal risk of collectibility or present other unfavorable features, and must be at terms, amount, and interest rate substantially the same as those prevailing at the same time for comparable loans made to members of the general public of similar credit status. An insured institution must comply with the requirements of (b) of this Section with respect to any extensions of commercial credit exceeding an aggregate amount of $10,000. An insured institution shall at the time of approval by the board of directors of such a transaction notify its Supervisory Agent of the transaction and all other outstanding extensions of commercial credit to the affiliated person.

(f)   No insured institution or subsidiary thereof may invest, either directly or indirectly, in the stock, bonds, notes, or other securities of any affiliated person of such institution.

(g)   No insured institution or subsidiary thereof may, either directly or indirectly, purchase securities under a repurchase agreement from any affiliated person of such institution.

(h)   No insured institution or subsidiary thereof may, either directly or indirectly:

(1)   Make a loan to, or purchase (other than through a secondary market such as the Federal Home Loan Mortgage Corporation) any loan made to any third party on the security of real property purchased from any affiliated person of such institution, unless the property was a single-family dwelling owned and occupied by the affiliated person as his principal residence;

(2)   Make a loan to, or purchase a loan made to, any third party secured by real property with respect to which any affiliated person of such institution holds a security interest;

(3)   Accept the stock, bonds, notes, or other securities of any affiliated person of such institution as security for a loan to any third party made or purchased by such institution or subsidiary thereof;

(4)   Maintain a compensating balance with respect to a loan made by any third party to any affiliated person of such institution; or

(5)   Enter into any guarantee arrangement or make any takeout commitment with respect to a loan made by any third party to any affiliated person of such institution.

[Source: Transferred from 625:10-5-8 (see Editor’s Note at beginning of this Chapter)]