FEDERAL DEPOSIT INSURANCE CORPORATION

IN RE: Androscoggin Savings Bank Lewiston, Maine

Application Pursuant to Section 24 of the Federal Deposit Insurance Act for Consent to Indirectly Engage as Principal Through a Wholly-Owned Subsidiary in Investment Activities That May Not Be Permissible for a Subsidiary of a National Bank

ORDER

The Federal Deposit Insurance Corporation (FDIC) has fully considered all available facts and information relevant to the application by the Androscoggin Savings Bank, Lewiston, Maine (Bank), pursuant to Section 24 of the Federal Deposit Insurance Act, 12 U.S.C. § 1831 a, and Part 362 of the FDIC's Rules and Regulations, for consent to indirectly retain through a wholly-owned subsidiary $45,401 of equity interests in one limited partnership managed by North Atlantic Venture Funding, a limited partnership based in Portland, Maine. North Atlantic Venture Funding invests in growth-oriented companies in the Maine, New Hampshire, and Vermont region. In addition, the Bank seeks the FDIC's permission to make future limited partnership investments that in turn invest in venture capital funds. The Bank states that it would limit its future aggregate investment in these limited partnerships to less than 15 percent of its Tier 1 capital.

Accordingly, it is hereby ORDERED, for the reasons set forth in the attached Statement, that the application submitted by the Bank for consent to indirectly retain through a wholly-owned subsidiary its existing investment in North Atlantic Venture Funding, and make future limited partnership investments in nonfinancial equities be, and hereby is, approved subject to the following conditions:

1. The limited partnership investments currently held, and in the future acquired, by the Bank be held indirectly through a single, wholly-owned subsidiary organized for the purpose of holding such investments (the Subsidiary);

2. The Subsidiary is a corporation that:

i. Meets applicable statutory or regulatory capital requirements and has sufficient operating capital in light  of the normal obligations that are reasonably foreseeable for a business of its size and character within the industry;

ii. Maintains separate accounting and other business records;

iii. Observes separate business entity formalities such as separate board of directors' meetings; and

iv. Conducts business pursuant to independent policies and procedures designed to inform third parties that the Subsidiary is a separate organization from the Bank, and that the Bank is not responsible for and does not guarantee the obligations of the Subsidiary;

3. The Bank shall limit its indirect equity investment activity through the Subsidiary to less than 15 percent of its Tier 1 capital;

4. That the Bank maintains a "well-capitalized" status pursuant to 12 CFR Part 325 of the FDIC Rules and Regulations after deducting from its Tier 1 capital the appropriate capital charge, as reflected in the table shown in Section II.B of Appendix A to Part 325, for its investments in nonfinancial equities. This deduction shall be reflected on the appropriate schedule of the Bank's quarterly consolidated report of condition and income. The amount of capital as so determined will be used for the purposes of the Bank's assessment risk classification under 12 CFR Part 327 of the FDIC's Rules and Regulations, and its categorization as a "well-capitalized," or "adequately capitalized" institution as defined in Part 325, provided that the capital deduction shall not be used for the purposes of determining whether the Bank is "critically undercapitalized;"

5. Without prior written approval of the FDIC's Regional Director of the Boston Regional Office, neither the Bank nor any of its subsidiaries may extend credit to the Subsidiary, purchase any debt instruments issued by the Subsidiary, or originate any other transaction that is used to benefit the Subsidiary;

6. Neither the Bank nor the Subsidiary may enter into any transaction with the limited partnership in which the Subsidiary has invested, or any transaction with the Bank's executive officers, directors, principal shareholders, or related interests of such persons, which relate to the Subsidiary's activities unless the transactions are on terms and conditions that are substantially the same as those prevailing at the time for comparable transactions with persons not affiliated with the Bank; and

7. In the event the facts and circumstances presented or otherwise known to the FDIC in connection with this request change significantly, the FDIC retains the ability to alter, suspend, or withdraw its approval.

Dated at Washington, D.C., this 25th day of March, 2002.

FEDERAL DEPOSIT INSURANCE CORPORATION
John M. Lane
Associate Director
Division of Supervision

FEDERAL DEPOSIT INSURANCE CORPORATION

IN RE: Androscoggin Savings Bank Lewiston, Maine

Application Pursuant to Section 24 of the Federal Deposit Insurance Act for Consent to Indirectly Engage as Principal Through a Wholly-Owned Subsidiary in Investment Activities That May Not Be Permissible for a Subsidiary of a National Bank

STATEMENT

Pursuant to the provisions of Section 24 of the Federal Deposit Insurance Act, Androscoggin Savings Bank, Lewiston, Maine (Bank), has filed an application with the Federal Deposit Insurance Corporation (FDIC). The Bank requests the FDIC's consent to indirectly retain through a wholly-owned subsidiary, a $45,401 nonfinancial equity investment in the North Atlantic Venture Funding (NAVF) limited partnership. NAVF was organized in 1987 to locate, analyze and invest in emerging growth companies, primarily in Maine, New Hampshire, and Vermont. The Bank has held this investment since 1987 with no adverse effect upon the overall condition of the Bank noted. The Bank's investment represents 0.10 percent of its Tier 1 capital. These are activities that may not be permissible for a subsidiary of a national bank. The Bank is also requesting permission to make future limited partnership investments that in turn invest in venture capital funds. The Bank's future aggregate investment in these limited partnerships will be less than 15 percent of its Tier 1 capital.

As of September 30, 2001, the Bank had total assets of $468.4 million. Its financial condition, future earnings prospects, and management are regarded as satisfactory. The Bank meets the definition of "well-capitalized" within the meaning of Part 325 of the FDIC's Rules and Regulations. The Bank has established a wholly owned subsidiary (the Subsidiary) to conduct the activity. The Subsidiary is organized as a corporation under Maine law, and the proposed investment is permissible under Title 9-B § 419 of the Maine Revised Statutes.

Neither insured state banks nor their subsidiaries may engage as principal in an activity prohibited for national banks unless consent has been obtained 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 funds.

Equity investing may be somewhat riskier than lending, but it requires the application of financial analysis, economic assessment, and business judgment similar to that required for lending. Subject to prudent supervision and judgment, investing in equity securities may not be unduly risky.

The FDIC is imposing a condition that neither the Bank nor any of its subsidiaries may extend credit to the Subsidiary, purchase any debt instruments issued by the Subsidiary, or originate any other transaction that is used to benefit the Subsidiary without the prior written approval of the FDIC's Regional Director of the Boston Region. This does not prohibit the Bank from extending credit to a third party who may do business with the fund company so long as the transactions are carried out on terms and conditions that are substantially similar to those prevailing at the time for comparable transactions with entities other than the fund company.

In order to ensure prudent operational safeguards, the Subsidiary should be operated in a manner to ensure corporate; separation between it and the Bank. This is to provide reasonable assurance that the assets of the Bank will not be subject to liability from a party seeking to hold the Bank responsible for the actions of the Subsidiary. Accordingly, the FDIC finds it appropriate to impose separateness conditions.

The final order does require that the Bank maintain a "well-capitalized" status after deducting a portion of its nonfinancial equity investments in the Subsidiary from Tier 1 capital in line with FDIC's Part 325 capital regulations. It is the FDIC's opinion that these types of equity investments in non-listed companies do carry a more than normal level of risk, and as such, should be held to the capital requirements for "nonfinancial equity investments" in Part 325. The Board of Directors of the FDIC, acting directly, may, in exceptional cases and after a review of the proposed activity, permit a lower capital deduction for investments approved by the Board of Directors under section 24 of the FDI Act so long as the Bank's investments under section 24 and SBIC investments represent, in the aggregate, less than 15 percent of the Tier 1 capital of the bank. The FDIC reserves the authority to impose higher capital charges on any investment where appropriate. The FDIC does not view this proposed investment as "exceptional," and concludes that Bank should adhere to the capital deductions required in Part 325. It is necessary to impose a capital deduction in this instance to protect the deposit insurance funds from the more-than-normal risk involved with these nonfinancial equity investments.

Under the amendments to Part 325 regarding "nonfinancial equity investments" by banking organizations, no capital charge deduction is required for "nonfinancial equity investments" that are made by a banking organization through a Small Business Investment Company (SBIC) so long as the "adjusted carrying value" of the investment does not exceed 15 percent of the Tier 1 capital. "Nonfinancial equity investments" is defined in Part 325, Appendix A, section II.B.(6), and "adjusted carrying value" is defined in section II.B.(6)(vi) of Appendix A. Any nonfinancial equity investment that is held through a SBIC and not deducted from Tier 1 capital will be assigned a 100 percent risk-weight.

To the extent the adjusted carrying value of nonfinancial equity investments held directly or indirectly by a banking organization through an SBIC exceeds 15 percent of Tier 1 capital, the appropriate percentage of such amounts as set forth in Part 325, Appendix A must be deducted from the banking organization's Tier 1 capital. In addition, the adjusted carrying value of all nonfinancial equity investments held by a banking organization through a SBIC (including any such investments for which no deduction is required under Part 325) would be included in determining the total amount of nonfinancial equity investments held by the banking organization in relation to its Tier 1 capital.

Finally, in order to prevent potential abuses, the FDIC is imposing a condition that transactions between the Bank or the Subsidiary and any of the Bank's insiders or their related interests must be on an arm's length basis. Based on a careful review of all available facts and information, including the investment limits within the Bank's proposal, the FDIC has concluded that the proposed investment does not pose a significant risk to the Bank Insurance Fund and, therefore, approval of the application subject to the conditions in the Order is warranted.

ASSOCIATE DIRECTOR
DIVISION OF SUPERVISION
FEDERAL DEPOSIT INSURANCE CORPORATION