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American Commercial Bank

FDIC Federal Deposit Insurance Corporation
Washington, D.C 20429
Division of Supervision
March 27, 1997

Board of Directors
American Commercial Bank
300 South Mills Road
Ventura, California 93006

Members of the Board:

We have reviewed the request of American Commercial Bank, Ventura, California (the "Bank") to indirectly continue activities which may not be permissible for a national bank or a subsidiary of a national bank, through formation of a wholly-owned subsidiary and transfer of two real estate investment activities, the Ventura Affordable Housing, Ltd. and the Santa Paula Affordable Housing, Ltd. partnership interests to this subsidiary.

The application, dated December 18, 1996, was filed pursuant to Section 362.4(d)(4)(iii) of the Federal Deposit Insurance Corporation ("FDIC") Rules and Regulations and was received in the FDIC San Francisco Regional Office on that same date.

For the reasons set forth in the attached Statement, your application was approved today subject to the following conditions:

(1) That the Bank immediately shall take steps to obtain State approval to form a subsidiary to hold these investments and that the investments be transferred to said subsidiary immediately upon receipt of such approval.

(2) That the Bank shall take the necessary steps to operate the newly organized subsidiary in a manner so as to ensure its separate corporate existence as a majority-owned subsidiary that:

(a) is adequately capitalized,

(b) is separate and distinct in its operations from the operations of the Bank,

(c) maintains separate accounting and other corporate records,

(d) observes separate formalities such as separate boards of directors' meetings,

(e) maintains boards of directors with management expertise capable of conducting activities in a safe and sound manner,

(f) contracts with the Bank for any service on terms and conditions comparable to those available to or from independent entities, and

(g) conducts business pursuant to separate policies and procedures designed to inform customers and prospective customers of the subsidiary that the subsidiary is a separate organization from the Bank, including the placement of specific language on any debt instrument or contract with a third party disclosing that the Bank itself is not responsible for payment or performance;

(3) That the Bank's indirect real estate investment activities, including equity interests, debt obligations of the subsidiary or holdings of the subsidiary held by the Bank, Bank guaranties of debt obligations issued by the subsidiary or holdings of the subsidiary, extensions of credit or commitments of credit to the subsidiary or holdings of the subsidiary or to any third party for the purpose of making a direct investment in the subsidiary or holdings of the subsidiary, or making an investment in any investment in which the subsidiary or holding of the subsidiary has an interest, shall be limited to that which is currently held;

(4) That the investment in the real estate investment activity known as Ventura Affordable Housing, Ltd. be reduced through proceeds received from the sale of homes in that project and other partnership distributions to a level less than 2 percent of the Bank's total assets on or before June 30, 1997;

(5) That full divestiture of the real estate investment activity known as Santa Paula Affordable Housing, Ltd. be accomplished on or before December 19, 1999;

(6) That the Bank shall not condition any loan on the purchase of real estate from the subsidiary or holdings of the subsidiary;

(7) That all future transactions between the Bank and the subsidiary or holdings of the subsidiary shall be made in accordance with the restrictions of Section 23A and 23B of the Federal Reserve Act, 12 U.S.C. 371c and 371c-1, to the same extent as though the subsidiary or its holdings were affiliates of the Bank, except that the amount and collateral limitations of Section 23A shall not apply to loans made by the Bank to facilitate the sale of the real estate investments held by the subsidiary or holdings of the subsidiary, provided the loans are consistent with safe and sound banking practices, do not present more than the normal degree of risk of repayment, and the credit is extended on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions;

(8) That the Bank, the subsidiary and holdings of the subsidiary shall not engage in any transactions with insiders of the Bank or their related interests which relate to the subsidiary's or holdings of the subsidiary's real estate investment activities without the prior written consent of the appropriate DOS Regional Director; and,

(9) That consent is granted based on the facts and circumstances presented or otherwise known to the FDIC in connection with this request. The Bank shall notify, the FDIC of any significant change in facts or circumstances, and the FDIC shall have the right to alter, suspend, or withdraw its approval.

Questions relating to this matter may be referred to Assistant Regional Director Karl R. Krichbaum or Review Examiner P. Bonn Phillips in the San Francisco Regional Office at (415) 546-1810.

Sincerely

Steven K. Scholzen
Acting Associate Director


FEDERAL DEPOSIT INSURANCE CORPORATION

RE: American Commercial Bank Ventura, California

Application Pursuant to Section 24 of the Federal Deposit insurance Act to Indirectly Continue Activity That May Not Be Permissible for a National Bank

STATEMENT

Pursuant to the provisions of Section 24 of the Federal Deposit Insurance Act (the "FDI Act"), an application has been filed with the Federal Deposit Insurance Corporation by American Commercial Bank, Ventura, California ("the Bank"). The Bank requests FDIC consent to allow it to retain its investments in Ventura Affordable Housing, Ltd. ("VAH") and Santa Paula Affordable Housing, Ltd. ("SPAH") by transferring these interests to a wholly owned subsidiary which will be organized for purpose of holding said investments, for purposes of reduction of investment or divestiture. The Bank proposes to reduce its investment in VAH to a level below 2 percent of total assets prior to June 30, 1997. This investment consists of a limited partnership interest in a "qualified housing project", as defined Section 24(c)(3) of the FDI Act and in the FDIC's regulations at 12 C.F.R. Section 362.3(b)(2). Such investments are exempted from the requirements of Section 24 if they do not exceed 2 percent of total assets. In addition, investment in SPAH will be divested in timely manner, but no later than December 19, 1999. This real estate investment consists of 45 acres of vacant land located in Ventura County adjacent to Santa Paula, California.

In general, real estate investment may not be a permissible activity for a national bank or a subsidiary of a national bank. Subsidiaries of state-chartered, FDIC-insured banks may not engage as principal in an activity prohibited to subsidiaries of nationally chartered banks unless they obtain consent from the FDIC. Consent may not be granted unless the bank is in compliance with applicable capital standards and the FDIC determines that the activity poses no significant risk to the deposit insurance fund. California banking statutes permit the holding of subject real estate investment.

The Bank has made reasonable efforts to divest the remaining realty. The VAH project is nearing the "sold out" stage which would be followed by a final accounting and disbursement of profits. The SPAH property has been sold; however, pursuant to generally accepted accounting principles it continues to be considered a real estate investment asset of the Bank due to financing terms accepted in the sale. The Bank does not engage in real estate activities beyond these interests. Bank management has indicated that it has no intention of engaging in real estate activities once these holdings are liquidated.

The Bank meets the definition of "Well capitalized" within the meaning of Part 325 of the FDIC's Rules and Regulations. The Bank's investment in SPAH and excess investment over the statutory limits in VAH represents approximately 8.7% of the Bank's Tier I capital as of December 31, 1996. The Bank would continue to be "Well capitalized" in the event that its remaining investment in VAH as of June 30, 1997, and the book value of SPAH were deducted from capital. In connection with this application, the FDIC has also taken into consideration the financial and managerial resources and future earnings prospects of the Bank.

Real estate investment is subject to a high degree of market risk and other specialized risks specific to real estate ownership and may also be of questionable benefit in the diversification of a financial institution's portfolio of assets. Due to these risks, real estate investment activities appear suitable to a financial institution only on a very limited scale and under restrictive conditions designed to control the various risks posed to the financial institution and the deposit insurance fund.

As prudential limitations and restrictions addressing the risks posed by real estate investment activities will be imposed, the subsidiary's real estate investment activities will not constitute a significant risk to the Bank Insurance Fund or present material safety and soundness concerns.

Based upon careful evaluation of all available facts and information, the Acting Associate Director, acting under delegated authority, has concluded that approval of the application is appropriate subject to the restrictions discussed below. The following conditions are imposed for prudential reasons due to the volatility and other risks which are inherent in the subject real estate activity as well as to mitigate any potential insider conflicts of interests or risks associated with transactions between the Bank and the subsidiary, VAH or SPAH:

That the Bank immediately take steps to obtain State approval to organize a subsidiary to hold these investments and that the investments be transferred to that subsidiary immediately upon receipt of such approval.

That the Bank shall take the necessary steps to operate the newly organized subsidiary in a manner so as to ensure its separate corporate existence as a majority-owned subsidiary that:

(a) is adequately capitalized,

(b) is separate and distinct in its operations from the operations of the Bank,

(c) maintains separate accounting and other corporate records,

(d) observes separate formalities such as separate boards of directors' meetings,

(e) maintains boards of directors with management expertise capable of conducting activities in a safe and sound manner,

(f) contracts with the Bank for any service on terms and conditions comparable to those available to or from independent entities, and

(g) conducts business pursuant to separate policies and procedures designed to inform customers and prospective customers of the subsidiary that the subsidiary is a separate organization from the Bank, including the placement of specific language on any debt instrument or contract with a third party disclosing that the Bank itself is not responsible for payment or performance;

That the Bank's indirect real estate investment activities, including equity interests, debt obligations of the subsidiary or holdings of the subsidiary held by the Bank, Bank guaranties of debt obligations issued by the subsidiary or holdings of the subsidiary, extensions of credit or commitments of credit to the subsidiary or holdings of the subsidiary or to any third party for the purpose of making a direct investment in the subsidiary or holdings of the subsidiary, or making an investment in any investment in which the subsidiary or holding of the subsidiary has an interest, shall be limited to that which is currently held;

That the investment in the real estate investment activity known as Ventura Affordable Housing Ltd. be reduced through proceeds received from the sale of homes in that project and other partnership distributions to a level less than 2 percent of the Bank's total assets on or before June 30, 1997;

That full divestiture of the real estate investment activity known as Santa Paula Affordable Housing, Ltd. be accomplished on or before December 19, 1999;

That the Bank shall not condition any loan on the purchase of real estate from the subsidiary or holdings of the subsidiary;

That all future transactions between the Bank and the subsidiary or holdings of the subsidiary shall be made in accordance with the restrictions of Section 23A and 23B of the Federal Reserve Act, 12 U.S.C. 371c and 371c-1, to the same extent as though the subsidiary or its holdings were affiliates of the Bank, except that the amount and collateral limitations of Section 23A shall not apply to loans made by the Bank to facilitate the sale of the real estate investments held by the subsidiary or holdings of the subsidiary, provided the loans are consistent with safe and sound banking practices, do not present more than the normal degree of risk of repayment, and the credit is extended on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions;

That the Bank, the subsidiary and holdings of the subsidiary shall not engage in any transactions with insiders of the Bank or their related interests which relate to the subsidiary's or holdings of the subsidiary's real estate investment activities without the prior written consent of the appropriate DOS Regional Director; and

That consent is granted based on the facts and circumstances presented or otherwise known to the FDIC in connection with this request. The Bank shall notify the FDIC of any significant change in facts or circumstances, and the FDIC shall have the right to alter, suspend, or withdraw its approval.

Finally, FDIC notes that the foregoing approval is unique to this application, that it was significantly influenced by the subsidiary's acquisition of the subject real estate interest prior to the effective date of Section 24, and that its view of de novo acquisition of such interest might well be different.

ACTING ASSOCIATE DIRECTOR
DIVISION OF SUPERVISION



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