On May 3, 2011, H.R. 1697, the "Communities First Act" was introduced to the U.S. House of Representatives by Rep. Blake Luetkemeyer of Montana. This proposed legislation contains several favorable provisions for community banks. Highlights of this legislation include:
- The ability for community banks to amortize losses on real estate loans and other real estate owned during a 10-year period for regulatory capital purposes;
- An extension of the five year tax net operating loss carryback provision for community banks through 2011 losses;
- Relief from the inhibitions of utilizing tax net operating loss carryforwards for community banks when raising new capital ("Section 382" relief);
- Allowing S corporations to have 200 shareholders, IRA shareholders and issue preferred stock;
- Providing a tax credit of 20 percent of taxable income (up to a maximum credit of $250,000) for C corporation community banks;
- Allowing banks to be taxed as an LLC, or partnership - less restrictive than S corporation structure, as more than one class of equity is allowed, no limit on type or number of investors and more;
- Before establishing or making any revision to any accounting standard or regulation, a cost-benefit analysis to the banking industry must first be completed;
- Updating loan officers limitations to $250,000 (other than those loans for housing, education and certain secured loans);
- Reducing tax rate and defers income for bank customers on long-term certificates of deposit;
- Providing for tax-exempt interest income for banks or savings associations from agricultural real estate loans and mortgage loans in communities of 2,500 or less in population;
- Small bank qualified tax-exempt bond definition increased to $30 million permanently;
- AMT repeal for individual punitive AMT, as well as corporate AMT for C corporation banks with total assets less than $5 billion; and
- Using five-year average appraisal values of real estate securing a loan held by the institution for purposes of determining capital requirements or measuring capital of a bank.
There are many more favorable provisions contained in the original proposal of this bill for community banks, in addition to what was mentioned in this article. As of the date of publication of this newsletter, this legislation has not yet passed House vote. Eide Bailly will closely monitor this important bill through the legislative process and keep interested financial institutions up to date as to its progress.
