July 17, 1997
Border Trust Company
Route 3
South China, Maine
Members of the Board:
We have reviewed your request to indirectly continue activities through the bank's wholly-owned
subsidiary, Border Realty Corporation (Border Realty), that may not be permissible for a
subsidiary of a national bank. The application, dated April 18, 1997, 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 Boston Regional Office April 30, 1997.
For the reasons set forth in the attached Statement, your application was approved today subject
to the following conditions:
(1) The Bank shall immediately transfer the Post Office Real Estate upon the formation of
Border Realty;
(2) The Bank shall take the necessary steps to operate Border Realty in a manner so as to ensure
its separate corporate existence as a wholly-owned subsidiary that:
(a) is adequately capitalized,
(b) is separate and distinct from the operations of the Bank,
(c) maintains separate accounting and other corporate records,
(d) observes separate formalities such as separate board of directors meetings,
(e) maintain a board 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 Border Realty 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) The Bank's indirect real estate investment activity through the Border Realty shall be limited
to holding the Post Office Real Estate and the leasing of the existing building and that no
additional real estate shall be acquired by the Bank or Border Realty;
(4) The Bank shall be well capitalizedi as defined in Section 325.103(b)(1) of the FDIC's Rules
and Regulations, after deducting the Bank's investment in Border Realty;
(5) Neither the Bank nor Border Realty shall engage in transactions with insiders of the
Bank or their related interests which relate to Border Realty's real estate investment activities
without the prior written consent of the appropriate DOS Regional Director,
(6) Transactions between the Bank and Border Realty shall be made in accordance with
the restrictions of Sections 23A and 23B of the Federal Reserve Act 12 U.S.C. 371c and
371c-1, to the same extent as though Border Realty were an affiliate 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 investment held by Border Realty, 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,
(7) The board of directors of the subsidiary shall include more than one member; and
(8) The consent granted herein is based on the facts and circumstances presented or known
to the FDIC in connection with this request, and that the bank notify the FDIC of any
significant change in facts or circumstances. The FDIC's action is conditioned upon its
ability,to alter, suspend, or withdraw its approval in the event the facts and circumstances
presented in the application change significantly,
Questions relating to this matter may be referred to Assistant Regional Director Richard C.
Barringer or Case Manager Ellen T. Kosmicki in the Boston Regional Office at (617) 320-1600.
Sincerely,
Cottrell L. Webster
Acting Associate Director
FEDERAL DEPOSIT INSURANCE CORPORATION
RE: Border Trust Company
South China, Maine
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, an application
has been filed with the Federal Deposit Insurance Corporation by Border Trust Company, South
China, Maine (Bank). The Bank requests FDIC consent to allow its newly created wholly-owned
subsidiary, Border Realty Corporation (Border Realty) to acquire from the Bank 1 acre of real
property in South China, Maine and hold and lease the property. The 1 acre of land is currently
improved with a building that is leased to the U.S. Postal Service (Post Office Real Estate).
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. Maine banking statutes permit the holding of subject real
estate investment.
The Bank does not engage in real estate activities beyond the investment in the Post Office
Real Estate and Bank management has indicated that it has no intention of engaging in any
additional real estate activities.
The Bank meets the definition of "Well capitalized" within the meaning of Part 325 of the
FDIC's Rules and Regulations. The Post Office Real Estate represented approximately 6.11% of
the Bank's Tier I capital as of March 31, 1997, and the Bank would continue to be "Well
capitalized" in the event its entire investment in Border Realty were deducted from capital. In
connection with this application, the FDIC has also taken into consideration the favorable
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 Border Realty:
(1) The Bank shall immediately transfer the Post Office Real Estate upon the formation of
Border Realty,
(2) The Bank shall take the necessary steps to operate Border Realty in a manner so as to ensure
its separate corporate existence as a wholly-owned subsidiary that;
(a) is adequately capitalized,
(b) is separate and distinct from the operations of the Bank,
(c) maintains separate accounting and other corporate records,
(d) observes separate formalities such as separate board of directors meetings,
(e) maintain a board 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 Border Realty 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) The Bank's indirect real estate investment activity through the Border Realty shall be limited
to holding the Post Office Real Estate and the leasing of the existing building and that no
additional real estate shall be acquired by the Bank or Border Realty;
(4) The Bank shall be well capitalized as defined in Section 325.103(b)(1) of the FDIC's Rules
and Regulations, after deducting the Bank's investment in Border Realty;
(5) Neither the Bank nor Border Realty shall engage in transactions with insiders of the
Bank or their related Interests which relate to Border Realty's real estate investment activities
without the prior written consent of the appropriate DOS Regional Director;
(6) Transactions between the Bank and Border Realty shall be made in accordance
the resrictions of Sections 23A and 23B of the Federal Reserve Act 12 U.S.C. 371c and
371c-1, to the same extent as though Border Realty were an affiliate of the Bank, except that
the amount and collateral limitations of Section 23 A shall not apply to loans made by the
Bank to facilitate the sale of the real estate investment held by Border Realty, 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,
(7) The board of directors of the subsidiary shall include more than one member; and
(8) The consent granted herein is based on the facts and circumstances presented or known
to the FDIC in connection with this request, and that the bank notify the FDIC of any
significant change in facts or circumstances. The FDIC's action is conditioned upon its
ability to alter, suspend, or withdraw its approval in the event the facts and circumstances
presented in the application change significantly.
ACTING ASSOCIATE DIRECTOR
DIVISION OF SUPERVISION
