Virginia Law

Article 9. Investments and Loans.

A. No bank, without the approval of the Commission, shall invest in its bank building and premises, property held for future accommodation, or in stock or other obligations of any corporation holding title to premises of the bank, if the aggregate of such investments and loans, together with the amount of any indebtedness of such corporation, 50 percent or more of the stock of which is owned by the bank, will exceed the greater of (i) 50 percent of the capital stock, surplus, and undivided profits of the bank or (ii) 100 percent of the capital stock of the bank. If, subsequent to any investment or loan, the surplus or undivided profits of any such bank are diminished by losses so that the investments or loans amount to more than the greater of (a) 50 percent of its paid-in capital stock and its remaining surplus and undivided profits or (b) 100 percent of the capital stock, the bank shall not pay dividends without the permission of the Commission until such investments or loans are equal to or less than the greater of 50 percent of the capital stock, surplus, and undivided profits, or 100 percent of the capital stock of the bank.

B. In computing the bank's investment in depreciable property, the initial price or cost may be reduced by reasonable depreciation.

C. The Commission shall not in any event approve investments and loans in excess of the foregoing if the aggregate amount thereof would exceed 60 percent of the bank's capital stock, surplus, and undivided profits. The Commission in approving such excess investments may impose, as a condition of such approval, restrictions upon dividends or other restrictions upon the bank. The restrictions shall expire automatically when the investment of the bank in building premises shall no longer exceed the greater of (i) 50 percent of the capital stock, surplus, and undivided profits of the bank or (ii) 100 percent of the capital stock.

Code 1950, § 6-49; 1966, c. 584, § 6.1-57; 1968, c. 61; 2010, c. 794.

A. As used in this section, "bank service corporation" means a corporation engaged primarily in rendering services, other than the renting of the bank premises or the furnishing of furniture or fixtures, to two or more banks.

B. A bank may acquire, own, and hold the stock and other securities or obligations of a bank service corporation in an amount not to exceed 10 percent of the bank's capital stock and permanent surplus. A bank may not invest in any bank service corporation unless it uses or intends to use the services of the bank service corporation. A bank may not invest in more than one bank service corporation without the consent of the Commission.

C. Stock in a Federal Reserve Bank shall not be considered stock of a bank service corporation within the meaning of this section.

Code 1950, § 6-49.1; 1962, c. 38; 1966, c. 584, § 6.1-58; 2010, c. 794.

A. In addition to the authority provided in § 6.2-873, every bank incorporated under the laws of the Commonwealth may purchase, hold, and convey the following real estate for the purposes stated and for no other:

1. Real estate that is desirable and prudent for its present or future accommodation in the transaction of its business;

2. Real estate that is mortgaged or otherwise encumbered to it in good faith by way of security for debts contracted;

3. Real estate that is conveyed to it in satisfaction of debts previously contracted in the course of its dealings; and

4. Real estate it purchased at sales under judgments, decrees, mortgages, or deeds of trust held by it, in whole or in part, or purchased to secure debts due to it.

B. Nothing in this section shall affect the validity of the title to any such real estate conveyed or transferred by a bank.

Code 1950, § 6-50; 1966, c. 584, § 6.1-59; 1988, c. 296; 2010, c. 794; 2012, cc. 59, 157.

A. In addition to the ownership of real estate permitted in § 6.2-872, a bank may invest:

1. In real estate (i) for the purpose of producing income or for inventory and sale or (ii) for improvement, including the erection of buildings thereon, for sale or rental purposes. The bank may hold, sell, lease, operate, or otherwise exercise the rights of an owner of any such property; and

2. In the stock or other securities or obligations of a controlled subsidiary corporation under § 6.2-885 or 6.2-886 formed or utilized for the purposes in subdivision 1.

B. Unless specifically authorized by the Commissioner:

1. A bank shall not invest more than five percent in the aggregate of its assets in the investments authorized in subdivisions A 1 and A 2.

2. A bank shall not invest and lend in any one project an amount in excess of the loan limit to one borrower as provided in § 6.2-875.

1988, c. 296, § 6.1-59.1; 2010, c. 794.

A. No bank shall:

1. Acquire or own its own stock except to protect itself against loss from debts previously contracted, in which case the stock shall be disposed of within 12 months after it is acquired, and except as herein permitted;

2. Make loans collaterally secured by the stock of the bank, except that this section shall not affect the validity of any such security agreement between the bank and its borrower; or

3. Invest any of its funds in:

a. Shares of stock of any other corporation;

b. Any security of a limited liability company; or

c. Any notes or other obligations that are secured by real estate on which the bank is prohibited by § 6.2-878 from making any loans secured thereby.

B. The prohibitions in subsection A shall not prevent any bank from:

1. Acquiring any such stock, notes, or other obligations to protect itself or any fund in its custody or possession against loss from debts theretofore contracted;

2. Acquiring, owning, and holding stock of a building corporation or security of a limited liability company of the character and to the amount provided by § 6.2-870;

3. Acquiring, owning, and holding stock of an agricultural credit corporation organized under the laws of the Commonwealth, provided that the total amount of such stock shall not exceed 20 percent of the amount of the capital stock of the bank actually paid in and unimpaired, plus the amount of its unimpaired surplus fund;

4. Acquiring, owning, and holding stock of the Federal National Mortgage Association, the Government National Mortgage Association, or the Federal Home Loan Mortgage Corporation;

5. Acquiring, holding, and owning stock in any corporations or securities of limited liability companies which have as their purpose the operation of parking lots or parking garages, provided that no bank shall own, at any one time, stock in such corporations exceeding two percent of the amount of the capital stock of such bank actually paid in and unimpaired, plus the amount of its unimpaired surplus fund;

6. Acquiring, owning, and holding stock of a small business investment company as defined by the Federal Small Business Investment Act of 1958;

7. Acquiring, owning, and holding stock of an industrial development company organized under the provisions of the Virginia Industrial Development Corporation Act (§ 13.1-981 et seq.);

8. Acquiring, owning, and holding stock of a bank service corporation or security of a controlled subsidiary corporation, subject to § 6.2-871 or 6.2-885, or from investing in a limited liability company, provided such investment conforms to § 6.2-871 or 6.2-885;

9. Acquiring, owning, and holding stock of the Student Loan Marketing Association, a corporation organized under the Higher Education Act of 1965, as amended;

10. Acquiring, owning, and holding stock of a "clearing corporation" as defined in § 8.8A-102;

11. Acquiring, owning, and holding stock of a trust subsidiary as defined in § 6.2-1000;

12. Investing up to four percent of its capital and surplus, including undivided profits, in shares of any bankers' bank organized under § 6.2-809 or in any bank holding company wherein the ownership of shares in such bank holding company is restricted to (i) financial institutions which have or are eligible for insurance of deposits by a federal agency or (ii) a financial institution holding company as defined in § 6.2-700 or a savings institution holding company as defined in § 6.2-1100;

13. Acquiring its own stock, with the book value of all such stock held not to exceed in the aggregate five percent of the book value of all shares issued and outstanding, including capital, surplus, and undivided profits as of the time of the purchase being made. In computing such capital surplus and undivided profits for purposes of this section, amounts received for resale of any repurchased stock shall be added back to capital, surplus, and undivided profits for purposes of computation of the five percent limitation. Such purchase may be without the written consent of the Commission, unless the Commission or Commissioner has previously notified the bank in writing that it may not utilize this subdivision until further notice. The Commission may further allow purchases of such stock in excess of such five percent criterion if the Commission finds that the purchase (i) will not impair the safety and solvency of the bank and (ii) is otherwise appropriate. The Commission may require the divestiture of any shares held if deemed necessary and appropriate;

14. Acquiring, owning, and holding, subject to such conditions as the Commissioner may prescribe, shares of investment companies;

15. Acquiring, investing in, owning, and holding, directly or indirectly, subject to such conditions as the Commissioner may prescribe, equity investments in a corporation, a limited partnership, a limited liability company, or another entity organized as (i) a community development corporation; (ii) an entity formed primarily to support community-based economic development; (iii) an entity qualifying for the new markets tax credit under 26 U.S.C. § 45D; (iv) an entity formed for a predominantly civic, community, or public purpose that (a) primarily benefits low-income and moderate-income individuals, (b) primarily benefits low-income and moderate-income areas, (c) primarily benefits areas targeted for redevelopment by a government entity, or (d) is a qualified investment under 12 C.F.R. § 25.23 for the purposes of the Community Reinvestment Act of 1977, 12 U.S.C. § 2901 et seq.; or (v) an entity making qualified rehabilitation expenditures with respect to a qualified rehabilitated building or certified historic structure, as such terms are defined in 26 U.S.C § 47, or a similar state historic tax credit program, as provided for in § 619(d)(1)(E) of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act, 12 U.S.C. § 1851(d)(1)(E);

16. Acquiring, owning, and holding shares of the Federal Agricultural Mortgage Corporation;

17. Acquiring, owning, and holding shares of a Federal Home Loan Bank;

18. Establishing, acquiring, investing in, owning, and holding shares of a rural business investment company or any entity established to invest solely in a rural business investment company as permissible under 7 U.S.C. § 2009cc-9(a)(1)(A) and 7 U.S.C. § 2009cc-9(b);

19. Engaging, directly or indirectly, in any tax equity finance transaction permissible for a national bank or federal savings association under 12 C.F.R. § 7.1025. The authority to engage in tax equity finance transactions under this section is separate from and does not limit any investment authorities available to a bank. A tax equity finance transaction is subject to the substantive legal requirements of a loan; or

20. Acquiring, investing in, owning, and holding shares, directly or indirectly, subject to such conditions as the Commissioner may prescribe, in any community and economic development entity, community development project, or other public welfare investment, provided that the investment is in compliance with 12 C.F.R. Part 24.

C. The provisions of this section shall not be construed to require a bank to dispose of any preferred stocks lawfully acquired as an investment prior to January 1, 1940.

1982, c. 185, § 6.1-60.1; 1985, c. 339; 1986, c. 269; 1987, c. 297; 1988, c. 464; 1989, cc. 377, 650; 1992, c. 366; 1993, c. 186; 1994, c. 119; 1996, c. 27; 2010, c. 794; 2023, cc. 543, 544.

A. As used in this section:

"Derivative transaction" shall include any transaction that is a contract, agreement, swap, warrant, note, or option that is based, in whole or in part, on the value of, any interest in, or any quantitative measure or the occurrence of any event relating to, one or more commodities, securities, currencies, interest or other rates, indices, or other assets.

"Installment consumer paper" shall include installment notes of up to 10 years' duration for the purchase of unimproved real property.

"Obligation" means the direct liability of the maker or acceptor of the paper discounted with or sold to a bank and the liability of the endorser, drawer, or guarantor who obtains a loan from or discounts paper with or sells paper under his guaranty to such bank. "Obligation" shall include:

1. In the case of obligations of a corporation or a limited liability company, all obligations of all subsidiaries thereof in which the corporation or limited liability company owns or controls a majority interest;

2. Any liability of the bank under a letter of credit, other than a letter of credit arising out of transactions involving the importation or exportation of goods or the domestic shipment of goods, except to the extent (i) the bank has a binding participation of another bank, organized under the laws of the Commonwealth or another state or the United States, or a written commitment by another such bank to assume primary liability therefor or (ii) such bank issuing the letter of credit has in its possession money on deposit to the credit of such customer or securities or assets readily convertible into cash with which to honor such letter of credit; and

3. Any credit exposure to a person arising from a derivative transaction between the bank and the person.

B. Subject to the exceptions set forth in subsections D, E, F, and I, the total obligations of any person, including, with respect to a partnership, as provided in subsection C, the partners having a five percent or greater interest in either the income or capital of a partnership other than limited partners, to any bank shall at no time exceed 15 percent of the sum of the capital, surplus, and loan loss reserve of such bank.

C. For the purposes of this section:

1. The obligation of partners in the partnership and the partnership shall not be combined with each other except if (i) the purpose for which the obligation of any partner was incurred or utilized relates to the partnership or the purposes of the partnership, including acquisition of an interest in the partnership, such obligation shall be combined with the obligation of the partnership or (ii) the primary source of repayment of a partner's individual obligation is the partnership or funds therefrom, the obligation of the partnership shall be combined with the obligation of such partner, other than a limited partner or partner with less than five percent interest, and the limitation specified herein shall apply to the combined obligations of each such partner and the partnership. Except in the two instances specified in clauses (i) and (ii), the individual liability of the partner shall not be treated as an obligation of the individual, and the obligations of partner as individual guarantor on partnership obligations shall not be treated as an obligation of the individual for purposes of computation hereunder when, in either case, the bank has a certificate of a responsible officer, designated by the board of directors for this purpose, stating that the responsibility of the partnership for each obligation has been evaluated and the bank is relying primarily upon such partnership for the payment of such indebtedness; and

2. There may be counted as part of the surplus (i) the undivided profits as of the date of the most recent call statement and (ii) capital notes and debentures, the issuance of which has been approved by the Commission, outstanding as of said date, and consisting of debt obligations subordinate to all other contractual liabilities of the bank.

D. The following kinds of obligations shall not be subject to any limitation, except as expressly stated in subdivision 20:

1. Obligations in the form of drafts or bills of exchange drawn in good faith against actually existing values;

2. Obligations arising out of the discount of commercial or business paper actually owned by the person, partnership, association, limited liability company, or corporation negotiating the same;

3. Obligations drawn in good faith against actually existing values and secured by goods or commodities in process of shipment;

4. Obligations in the form of banker's acceptances of other banks of the kind described in section thirteen of the Federal Reserve Act;

5. Obligations of the United States, the Commonwealth, or any political subdivision of the Commonwealth, including sanitary or public facilities districts;

6. Obligations fully guaranteed or insured by a state or by a state authority for the payment of the obligation of which the faith and credit of the state is pledged;

7. First mortgage real estate loans that are insured by the Federal Housing Administrator;

8. Obligations guaranteed as to principal and interest by the United States;

9. Loans in which the Small Business Administration or a federal reserve bank has definitely agreed or committed itself to participate, to the extent of such participation;

10. Obligations guaranteed by the Small Business Administration or Farmers Home Administration, to the extent of such guaranty;

11. Loans that the Federal Commodity Credit Corporation has definitely agreed to purchase;

12. Direct obligations of, and obligations guaranteed by, the Export-Import Bank;

13. Loans guaranteed by a federal guaranteeing agency pursuant to the Defense Production Act of 1950;

14. Bonds and notes of the Federal National Mortgage Association;

15. Bonds, debentures, and other similar obligations of Federal Land Banks, Federal Intermediate Credit Banks, or Banks for Cooperatives issues pursuant to acts of Congress;

16. Obligations of the Federal Financing Bank, the Student Loan Marketing Association, the Federal Home Loan Mortgage Corporation, the National Credit Union Administration, Farm Credit Banks, the Government National Mortgage Association, or the Commodity Credit Corporation;

17. Time deposits in, or obligations issued by, a Federal Home Loan Bank;

18. Repurchase agreements of obligations authorized by this subsection;

19. Obligations of any person, secured by not less than a like amount of bonds or notes or other evidences of indebtedness of the United States or of the Commonwealth;

20. Obligations as endorser or guarantor of installment consumer paper that carry a full or limited endorsement or guarantee of the person transferring the same when the bank has a certificate of a responsible officer, designated by its board of directors for that purpose, stating that the responsibility of the maker of such obligation has been evaluated and the bank is relying primarily upon such maker for the payment of such obligation. In such case the limitations of this section as to the obligations of the maker shall be the sole applicable loan limitation; and

21. Obligations secured by the pledge or assignment of certificates of deposit or saving certificates of the lending bank, to the extent of the principal amount of such certificates so pledged or assigned.

E. The following kinds of obligations shall be subject to a limitation of 30 percent of such capital and surplus:

1. Obligations as endorser or guarantor of notes, other than commercial or business paper excepted under subdivision D 2 having a maturity of not more than six months, and owned by the person endorsing and negotiating the same;

2. Obligations of any person in the form of notes or drafts secured by shipping documents or instruments (i) transferring or securing title covering livestock or (ii) giving a lien on livestock when the market value of the livestock securing the obligations is not at any time less than 115 percent of the amount by which the obligations exceed 15 percent of such capital and surplus; and

3. Obligations secured by bonds or notes of the United States, or bonds of the Commonwealth or any of its political subdivisions, if the face value thereof is at least equal to the excess of the obligations over 15 percent of such capital and surplus.

F. Nonrenewable obligations having not more than 10 months to run consisting of notes or drafts secured by shipping documents, warehouse receipts, or similar documents creating a security interest in readily marketable, nonperishable, staple commodities, insured to the extent that insurance is customarily required, shall be subject to a sliding scale limitation up to 50 percent of such capital, surplus, and undivided profits. The sliding scale limitation shall require that when the face amount of the obligation exceeds 15 percent of such capital and surplus by any number of percentage points up to 35, the market value of the security for the obligation shall exceed the face amount of the obligation by at least the same number of percentage points.

G. The Commission shall adopt necessary regulations to require entities that would otherwise be treated as separate entities to be treated as related for the purposes of compelling reporting not more frequently than quarterly, to the Commission of the aggregate obligations of such parties to the bank. For the purposes of this subsection:

1. The Commission may treat as related parties individuals that are in the same household or that are the parents, grandparents, children, or grandchildren of each other whether or not in the same household;

2. Any person owning as much as 34 percent of stock of a corporation or being an officer or director of such corporation may be treated as related to such corporation;

3. Any person entitled to a share of the profits and losses of or distributions from a limited liability company, or who is a manager of a manager-managed limited liability company or a member of a member-managed limited liability company, may be treated as related to the limited liability company; and

4. Any person having an interest in income or capital of a partnership may be treated as a related party.

H. All loans made by a bank in excess of 15 percent of its capital and surplus shall be approved by the board of directors or the executive committee of the bank by resolution recorded in the bank's minute book.

I. Notwithstanding the limitations in this section, the Commission may by regulation authorize state banks to make loans to one borrower in such amounts as may be authorized under any lending limit laws applicable to national banks.

J. The Commission may adopt such regulations as it deems appropriate to (i) further define the term "derivative transaction" and (ii) set forth the rules for calculating credit exposures arising from derivative transactions. Before adopting any such regulation, the Commission shall give reasonable notice of its content and shall afford interested parties an opportunity to be heard, in accordance with the Commission's Rules.

Code 1950, § 6-76; 1952, c. 23; 1958, c. 74; 1960, c. 27; 1966, c. 584, § 6.1-61; 1970, c. 42; 1974, c. 557; 1977, cc. 110, 466; 1978, c. 683; 1984, c. 134; 1987, c. 494; 1994, c. 290; 2002, c. 186; 2006, c. 912; 2010, c. 794; 2013, cc. 98, 126.

A. The maximum amount of loans and other extensions of credit a bank may make to any of its executive officers or directors, and the conditions and procedures for approval of such extensions of credit, shall be governed by Federal Reserve Board Regulation O, 12 C.F.R. Part 215, whether or not the bank is a member of the Federal Reserve System.

B. The aggregate amount of a bank's extensions of credit to its executive officers or directors, and their interests, shall not be excessive. The Commission shall adopt such regulations as may be required to prevent excessive aggregate amounts of extensions of credit by a bank to such persons and their interests.

Code 1950, § 6-77; 1966, c. 584, § 6.1-62; 1976, c. 658; 1978, c. 683; 1987, c. 351; 1995, c. 82; 1996, c. 13; 2004, c. 320; 2010, c. 794.

No bank shall pay an overdraft of an executive officer or director of the bank on an account at the bank unless the payment of funds is made in accordance with (i) a written, preauthorized, interest-bearing extension of credit plan that specifies a method of repayment or (ii) a written, preauthorized transfer of funds from another account of the account holder at the bank. This prohibition does not apply to the payment of inadvertent overdrafts on an account in an aggregate amount of $1,000 or less if (a) the account is not overdrawn for more than five business days and (b) the member bank charges the executive officer or director the same fee charged any other customer of the bank in similar circumstances.

1981, c. 343, § 6.1-62.1; 2010, c. 794.

A. As used in this section, "loan secured by real estate" means an obligation executed or assumed by the borrower that is secured by mortgage, deed of trust, or similar instrument, encumbering real estate that is owned by the borrower and upon which the bank relies as the principal security for the loan.

B. No bank shall make any loan secured by real estate when such loan, together with all prior liens or encumbrances on such real estate, exceeds 90 percent of the appraised value of the real estate securing such loan.

C. The appraisals necessitated by this section shall be required if the loan shall equal or exceed an amount established from time to time by the Commissioner. In establishing such amount, the Commissioner shall take into consideration the requirements imposed on banks under applicable federal regulations. Such appraisals shall be in writing, signed by the appraisers, and shall be retained in the files of the bank, subject to examination of bank examiners. The appraisers so appointed shall be experienced persons competent to appraise real estate in the locality where the real estate is located.

D. Any bank may make loans secured by real estate that do not comply with the limitations and restrictions in this section if the total unpaid amount of such loans, exclusive of the loans that subsequently comply with such limitations and restrictions, does not exceed 10 percent of the total amount of loans secured by real estate.

E. The provisions of this section relating to ratio of loan to appraised value and appraisal shall not apply if:

1. The real estate security is taken solely as an abundance of caution on terms which are not more favorable than they would be in absence of such a lien on real estate;

2. A real estate security conveyance is taken by or ancillary to the assignment of lease obligations upon which the bank is relying primarily and prudently;

3. A subsequent transaction results from an existing extension of credit providing (i) that the borrower has performed satisfactorily, (ii) there is no advance of new money, except as formerly agreed, (iii) the credit standing of the borrower is not deteriorating, and (iv) there is no obvious and noticeable deterioration of marketing conditions or the physical assets which provide collateral security to the bank; or

4. A lien upon real estate is taken to secure a prior advance which was not secured by such real estate.

F. In cases where an appraisal by a state-certified or state-licensed appraiser is not required, under this section or other sections of this chapter in a real estate-related financial transaction, the bank as a matter of prudence may take and preserve a reasonable appraisal, valuation, or analysis of real estate or real property in connection with such transaction.

G. The Commission may by order or regulation eliminate loans or specific categories of loans from the requirements of this section.

H. The provisions of this section shall not be construed to prohibit any bank from accepting, as security for a loan that it had made in good faith without security or upon security since found to be inadequate, an obligation or obligations secured by mortgage, deed of trust, or other such instrument upon real estate.

Code 1950, § 6-78; 1952, c. 25; 1956, c. 622; 1960, c. 23; 1964, c. 150; 1966, c. 584, §§ 6.1-63, 6.1-65; 1968, c. 549; 1972, c. 189; 1976, c. 487; 1978, c. 624; 1979, c. 375; 1981, c. 271; 1982, c. 263; 1984, c. 133; 1988, c. 170; 1991, c. 160; 1992, c. 68; 1994, c. 501; 2005, c. 263; 2010, c. 794.

A. If the bank reasonably and prudently relies upon factors other than or in addition to the real estate security, such as general credit standing, guarantees, commitments, or tangible or intangible personal property security, and enters in its records a written statement of the factors it relies on, the loan does not constitute a loan secured by real estate within the meaning of § 6.2-878, except that if the terms of the transaction shall be more favorable than in the absence of a lien, an appraisal shall be required as provided under § 6.2-878.

B. Loans made to homeowners for maintenance, repair, landscaping, modernization, alteration, improvement to, and furnishings and equipment for, their homes, whether or not secured, shall not be considered as loans secured by real estate within the meaning of § 6.2-878, provided each such loan shall (i) be payable in approximately equal monthly installments, (ii) not be for a term longer than 12 years, and (iii) not exceed an amount specified in accordance with subsection C of § 6.2-878. Such home loans may otherwise be made under the provisions of § 6.2-878 or 6.2-880. If such loan is in excess of the amount specified under subsection C of § 6.2-878, unless the taking of real estate security is solely in the abundance of caution and the terms are not more favorable than in the absence of such a real estate lien, an appraisal as required by § 6.2-878 or 6.2-880 shall be required by the bank.

Code 1950, §§ 6-78, 6-79.2; 1952, c. 25; 1956, c. 622; 1960, c. 23; 1962, c. 267; 1964, c. 150; 1966, c. 584, §§ 6.1-65, 6.1-66; 1970, c. 13; 1976, c. 94; 1980, c. 714; 1991, c. 160; 1994, c. 501; 2005, c. 263; 2010, c. 794.

A. As used in this section, "construction loan" means a loan (i) made to finance the construction of a building or otherwise to improve real estate and (ii) with a maturity not exceeding 60 months.

B. A construction loan that is accompanied by a valid and binding agreement to advance an amount equal to or greater than the construction loan upon the completion of the building or improvement, which agreement is entered into by an individual or entity acceptable to the bank or the bank itself, whether or not secured by a mortgage or similar lien on the real estate upon which the building or improvement is being constructed, shall not be considered as a loan secured by real estate within the meaning of § 6.2-878, but shall be classed as an ordinary commercial loan, unless the terms of the transaction shall be more favorable than in the absence of a lien, in which case an appraisal shall be required as provided under § 6.2-878.

C. No bank shall invest in, or be liable in, construction loans in an aggregate amount in excess of 100 percent of its capital and surplus, except that any such loans supported by an executed agreement for permanent financing shall not be included in such aggregate amount.

D. Loans to finance construction of buildings or otherwise to improve real estate may be made under this section or under the provisions of § 6.2-878.

E. Loans made under subsection H of § 6.2-878 or subsection A of § 6.2-879 shall not be treated as construction loans for purposes of the limitations of this section.

Code 1950, § 6-78; 1952, c. 25; 1956, c. 622; 1960, c. 23; 1964, c. 150; 1966, c. 584, § 6.1-64; 1970, c. 14; 1972, c. 189; 1981, c. 271; 1991, c. 160; 1995, c. 87; 2006, c. 273; 2010, c. 794.

A bank may invest in reverse annuity mortgages to the extent and in the manner that may be provided in regulations adopted by the Commission.

1979, c. 386, § 6.1-65.1; 1994, c. 501; 2010, c. 794.

A. Any bank borrowing money or rediscounting any of its notes shall at all times show on its books and accounts and in its reports the amount of such borrowed money or rediscounts.

B. No officer, director, or employee of any bank shall issue the note of such bank for borrowed money or rediscount any note or pledge any of the assets of such bank, except when authorized by resolution of the board of directors of such bank previously made and entered upon the minutes of such bank, under such regulations and in such form as may be adopted by the Commission.

Code 1950, § 6-80; 1966, c. 584, § 6.1-67; 1994, c. 7; 2010, c. 794.

A. Any bank doing business in the Commonwealth, subject to conditions, limitations, and restrictions imposed by the Commission, may (i) accept for payment at a future date drafts or bills of exchange drawn upon it by its customers on time not exceeding six months and (ii) issue letters of credit, upon such terms and conditions and of such duration as may be deemed appropriate by such bank, that authorize the holders thereof to draw drafts upon it or its correspondent, which drafts may be payable at sight or may be accepted for payment from the date of presentment on time not exceeding six months.

B. The Commission, in adopting conditions, limitations, and restrictions with respect to such acceptances or letters of credit, shall use as a standard or guide the respective conditions, limitations, and restrictions, if any, imposed from time to time by federal statute or by the Federal Reserve Board on its member banks.

Code 1950, § 6-82; 1966, c. 584, § 6.1-68; 1974, c. 81; 1976, c. 152; 1994, c. 7; 2010, c. 794.

A. As used in this section, "personal property" includes fixtures.

B. A bank may become the owner and lessor of personal property, subject to the following limitations:

1. Except in the case of short-term leases where a subsequent sale or reletting is anticipated, the rentals receivable by the bank under the initial lease of any item of personal property shall equal at least the cost to the bank of such item of personal property;

2. Any leasing or rental obligations to any bank of any person shall be treated as obligations subject to the limitations imposed by § 6.2-875; and

3. Upon the expiration of any lease whether by virtue of the lease agreement or by virtue of the retaking of possession by the bank, the personal property shall be sold or otherwise disposed of, or charged off within one year from the time of expiration of such lease unless it is held for the purpose of reletting.

C. No personal property acquired pursuant to this section shall be included in computable investment in fixed assets under § 6.2-870.

1968, c. 56, § 6.1-68.1; 1989, c. 482; 2010, c. 794.

A. As used in this section and §§ 6.2-886, 6.2-887, and 6.2-888:

"Control" has the meaning assigned to it in § 2 of the Bank Holding Company Act of 1956 (12 U.S.C. § 1841 et seq.).

"Controlled subsidiary corporation" means a corporation that is controlled by a bank organized under the laws of the Commonwealth, or by more than one bank, at least one of which is organized under the laws of the Commonwealth.

B. A bank may acquire, own, and hold the stock, securities, or obligations of one or more controlled subsidiary corporations. Such investment in stock, securities, or obligations, together with any investment of the bank in stock, securities, or obligations of a bank service corporation, shall not exceed in the aggregate 50 percent of the bank's capital stock and permanent surplus, without the permission of the Commission, which limit on investment shall not include, but shall be in addition to, investment in (i) a real estate subsidiary as provided in § 6.2-873, (ii) the stock, securities, or obligations of a building corporation under § 6.2-870, and (iii) controlled subsidiary corporations that are wholly owned by the bank.

C. A controlled subsidiary corporation shall not be authorized to (i) receive deposits except as hereafter provided; (ii) engage in the trust business; or (iii) conduct any business that is required under § 13.1-620 to be specifically stated in the articles of incorporation, except a controlled subsidiary corporation may engage in the business of credit card operations, leasing, safe deposit, factoring, credit bureaus, mortgage brokerage or servicing, data processing, international banking and finance, and any other function or business activity in which a bank might engage, except the receipt of deposits, or the trust business. Subject to the foregoing limitations on the businesses that a controlled subsidiary corporation is authorized to conduct, and with the prior approval of the Commission and subject to such conditions as the Commission may impose, a controlled subsidiary corporation may also engage in any business that is authorized by statute, regulation, or official interpretation for a subsidiary of a national bank or an out-of-state state bank as defined in § 6.2-836 to the extent such activity is financial in nature, or incidental or complimentary to a financial activity, and is not otherwise prohibited by state law. A controlled subsidiary corporation transacting business as a real estate brokerage firm shall be governed by § 6.2-888 and be subject to the provisions of this section. A controlled subsidiary corporation may charge and collect such finance charges and fees or interest rates as are authorized to banks by the laws of the Commonwealth or as otherwise authorized by Chapter 3 (§ 6.2-300 et seq.).

D. A controlled subsidiary corporation engaged solely in the business of international banking and finance, and subject to the regulation and supervision by the Board of Governors of the Federal Reserve System, shall not be prohibited from receiving deposits or from taking any other action that any such regulated international banking and finance institution is permitted to take.

E. The provisions of § 6.2-874 relating to investment of funds in shares of stock of another corporation shall be applicable to controlled subsidiary corporations, except that a controlled subsidiary corporation may acquire, own, and hold stock in a subsidiary corporation if a bank would be permitted to directly acquire, own, or hold the stock hereunder. The provisions of § 6.2-876 relating to loans to officers, directors, or employees of the bank shall be applicable both to loans by the subsidiary to officers, directors, or employees of the bank and to loans by the bank to officers, directors, or employees of the subsidiary, with the approval of the board of directors of the bank only being required for purposes of § 6.2-876. The limitations of §§ 6.2-878 through 6.2-881 as they relate to appraisal value, maximum term, and amortization on loans secured by real estate shall be applicable to controlled subsidiary corporations. Notwithstanding any provisions of this subsection to the contrary, the restrictions set out in §§ 6.2-874 through 6.2-881 shall not be imposed upon any controlled subsidiary that has no state banks as shareholders.

F. The provisions of § 6.2-875 relating to limitations upon obligations of any one borrower shall apply to the total obligations of any borrower in the aggregate to the subsidiary corporation and to any bank or bank holding company owning stock securities or obligations of such subsidiary corporation. The loan limit of the subsidiary shall be computed by attributing to the subsidiary a pro rata share of the lending limit of each bank stockholder prorated in accordance with the percentage of stock owned by such bank. However, in the case of a subsidiary, any of the stock, securities, or other obligations of which are owned by a bank holding company, the loan limits of the subsidiary shall be computed by attributing to the subsidiary a pro rata share of the lending limits of all bank subsidiaries of such holding company, which share shall be prorated based on the percentage of stock owned by the holding company and all subsidiary banks thereof. In computing whether a bank or a subsidiary that is not wholly owned is complying with its lending limit, the loans of the bank and the subsidiary to any common borrower shall be aggregated on a basis pro rata to the percentage of stock of the subsidiary owned by the bank. Such controlled subsidiary corporation shall not otherwise be subject to the provisions of this chapter except where it is expressly so provided. Notwithstanding any provisions of this subsection to the contrary, the restrictions set out in §§ 6.2-874 through 6.2-881 shall not be imposed upon any controlled subsidiary that has no state banks as shareholders.

1968, c. 270, § 6.1-58.1; 1978, c. 797; 1988, c. 296; 1993, c. 64; 1997, c. 277; 1999, c. 60; 2001, c. 508; 2003, cc. 536, 558; 2010, c. 794.

A. A controlled subsidiary corporation shall be subject to audit and examination by the Commission whether or not it is an affiliate as defined in § 6.2-899. The controlled subsidiary corporation shall pay such examination fees as shall be imposed under § 6.2-908 for the examination of trust departments. If upon examination the Commission shall ascertain that the corporation is created or operated in violation of this section or that the manner of operation is detrimental to the business of the parent bank and its depositors, it may order the bank to dispose of all or part of its investment in such corporation upon such terms as the Commission may deem proper.

B. A controlled subsidiary may not merge or consolidate unless the surviving corporation is itself a controlled subsidiary corporation, or unless as a result of such merger or consolidation the bank divests itself of all stock or other securities that are held pursuant to the authority granted by this section.

C. The Commission shall have the same powers over controlled subsidiary corporations as it has over banks under §§ 6.2-913, 6.2-915, 6.2-917, 6.2-918, and 6.2-919, excepting those controlled subsidiary corporations that have no state banks as stockholders.

1968, c. 270, § 6.1-58.1; 1978, c. 797; 1988, c. 296; 1993, c. 64; 1997, c. 277; 1999, c. 60; 2001, c. 508; 2003, cc. 536, 558; 2010, c. 794.

A. In addition to the types of business authorized in § 6.2-885, a controlled subsidiary corporation that is a domestic or foreign corporation, the majority of the voting stock of which is owned, directly or indirectly, by (i) a bank or banks organized under the laws of the United States, (ii) a bank or banks organized under the laws of the Commonwealth, (iii) a bank or banks organized under the laws of another state, or (iv) a bank holding company owning a bank or banks in the Commonwealth or in another state, may be formed to:

1. Transact the type of insurance business specified in § 38.2-120 and other insurance normally written under the coverage known as financial institution blanket bonds;

2. Underwrite insurance indemnifying the bank, its holding companies or its affiliates, and their directors and officers against liability; and

3. Underwrite reinsurance of mortgage guaranty insurance, subject to such conditions as the Commission may impose, on loans secured by real estate made or purchased by such controlled reinsurance subsidiary's affiliates or by a bank owning such controlled subsidiary.

B. Any such controlled subsidiary corporation shall (i) transact only the insurance business specifically permitted by this section and (ii) be subject to the further provisions of Title 38.2 otherwise applicable to insurance companies transacting a comparable business.

C. The investment of any bank in the stock, services, or other obligations of such a controlled subsidiary shall not exceed two percent of such bank's capital, surplus, and undivided profits.

1976, c. 340, § 6.1-58.2; 1977, c. 190; 1986, c. 638; 1998, c. 48; 2010, c. 794.

A. In addition to the types of business authorized in §§ 6.2-885 and 6.2-887, a controlled subsidiary corporation may be formed and licensed to transact business as a real estate brokerage firm in accordance with § 54.1-2106.1, provided such controlled subsidiary corporation transacts the real estate brokerage business and such services only in accordance with the specific provisions of this section. Such controlled subsidiary corporation shall be subject to the provisions of Chapter 21 (§ 54.1-2100 et seq.) of Title 54.1 that are otherwise applicable to real estate brokerage companies transacting a comparable business.

B. A controlled subsidiary corporation of a state bank may own and transact business as a real estate brokerage firm and provide the services of a real estate brokerage firm, only upon the Commission's determination that the state bank making application to do so is in full compliance with applicable law. The investment of any bank in the stock, securities, or other obligations of a controlled subsidiary corporation shall be approved by the Commission only upon a determination by the Commission that (i) the depositors of the bank are adequately protected from the risk of such ownership and (ii) the ownership is a safe and sound investment for the bank in accordance with applicable law. Such determination shall include but not be limited to providing written notice to the Virginia Real Estate Board and receiving written confirmation from the Virginia Real Estate Board that the real estate brokerage firm, to be owned, and its brokers, are in good standing in accordance with the requirements of Chapter 21 (§ 54.1-2100 et seq.) of Title 54.1.

C. A controlled subsidiary corporation of a state bank may own and transact business as a real estate brokerage firm only in compliance with the following:

1. The controlled subsidiary corporation, or a state bank that owns a controlled subsidiary corporation, that engages in real estate brokerage, shall not:

a. Impose a requirement, orally or in writing, that a borrower shall contract for or enter into any other arrangement for real estate services with its affiliated real estate brokerage firm;

b. Impose a requirement, orally or in writing, that as a condition of approving a loan a borrower shall contract or enter into any other arrangement with its affiliated real estate brokerage firm;

c. Impose a requirement, orally or in writing, that a real estate brokerage customer shall make application for a loan or any other service or services of a particular bank or any of its subsidiaries, affiliates, or service entities, except as otherwise permitted under the federal Real Estate Settlement Procedures Act of 1974 (12 U.S.C. § 2601 et seq.) and regulations adopted thereunder;

d. Impose a requirement, orally or in writing, that a condition of providing real estate brokerage services is that the customer shall make application for a loan or any other arrangement for other services of the bank or any of its subsidiaries, affiliates, or service entities, except as otherwise permitted under the federal Real Estate Settlement Procedures Act of 1974 (12 U.S.C. § 2601 et seq.) and regulations adopted thereunder;

e. Offer or provide more favorable consideration, terms, or conditions for any financial products or services to induce or attempt to induce a person to enter into any arrangement for real estate brokerage services with any particular real estate brokerage firm;

f. Offer or provide more favorable terms or conditions for any real estate brokerage services to induce or attempt to induce a person to apply for a loan or obtain any other services of a particular bank or any of its subsidiaries, affiliates, or service entities;

g. Conduct real estate brokerage activities in the same areas of a building where the bank routinely accepts retail deposits from the general public;

h. Conduct real estate brokerage activities in areas of a building that are identified as areas where banking activities occur;

i. Conduct banking activities in areas of the building that are identified as areas where real estate brokerage activities occur;

j. Make payment to its employees for any referrals of real estate brokerage business;

k. Use confidential credit and other financial information available from the bank for solicitation purposes by a real estate brokerage affiliate, without first having obtained the written consent of the customer;

l. Use or transfer from a bank to any affiliated real estate brokerage firm any financial information of or relating to any unaffiliated competing real estate brokerage firm that is an actual or prospective customer; or

m. Use, directly or indirectly, nonpublic customer information that is held or obtained by the bank for the purpose of soliciting real estate business, without first having obtained the written consent of the customer;

2. A state bank that makes a referral to its affiliated real estate brokerage firm shall clearly and conspicuously disclose in writing, in a separate document, to any person who applies for credit related to a real estate transaction or applies for prequalification or preapproval for credit related to a real estate transaction, that the person is not required to consult with, contract for, or enter into an arrangement for real estate brokerage services with its affiliated real estate brokerage firm; and

3. A real estate brokerage firm that is affiliated with a bank shall clearly and conspicuously disclose in writing, in a separate document, before the time an agency agreement for real estate brokerage services is executed, that the person is not required to apply, contract for, or enter into any other arrangement for services of a particular bank or any of its subsidiaries, affiliates, or service entities.

D. The requirements of this section are in addition to the requirements of the federal Real Estate Settlement Procedures Act of 1974 (12 U.S.C. § 2601 et seq.) and regulations adopted thereunder.

E. State banks owning and transacting business as real estate brokerage firms under this section are subject to the provisions of Chapter 9 (§ 55.1-900 et seq.) of Title 55.1.

F. A state bank that acts as a mortgage broker, as defined in § 6.2-1600, and that transacts business as a real estate brokerage through a controlled subsidiary corporation, is subject to subsection C of § 6.2-1616; however, a state bank that, pursuant to an executed originating agreement with the Virginia Housing Development Authority, acts or offers to act as an originating agent of the Virginia Housing Development Authority in connection with a mortgage loan shall not be deemed to be acting as a mortgage broker with respect to such mortgage loan but shall be deemed to be acting as a mortgage lender with respect to such mortgage loan, notwithstanding that the Virginia Housing Development Authority is or would be the payee on the note evidencing such mortgage loan and that the Virginia Housing Development Authority provides or would provide the funding of such mortgage loan prior to or at the settlement thereof.

G. In the event of a violation of this section, the Commission may take such action as is authorized in accordance with § 6.2-946, including issuance of an order requiring the state bank to cease and desist the activity that violates this section and imposing penalties.

2003, cc. 536, 558, § 6.1-58.3; 2006, c. 422; 2010, c. 794; 2022, cc. 400, 401.