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The Boston Bank of Commerce

FEDERAL DEPOSIT INSURANCE CORPORATION

IN RE: The Boston Bank of Commerce Boston, Suffolk County, Massachusetts

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

ORDER

The undersigned, acting under delegated authority, has fully considered all available facts and information relevant 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, relating to the application by the Boston Bank of Commerce, Boston, Suffolk County, Massachusetts (BBOC or the Bank), for consent to indirectly retain through its wholly-owned subsidiaries, BBC Capital Market, Inc., BBC Realty Corp., and BBC Properties I, Inc. (collectively known as the Subsidiaries) the following: its stock of Carver Bancorp, Inc. (Carver); its investment in Historic Preservation Properties 1989 Limited Partnership (HPP); and its investments in Ruggles-Bedford Associates, Inc., (RBA, Inc.), Ruggles-Bedford Associates, LP (RBA, LP), and Ruggles-Bedford Lenders Participation Trust (LPT). These are activities that may not be permissible for a national bank or the subsidiary of a national bank. All of these investments are authorized by the Massachusetts General Laws or with the consent of the Division of Banks of the Commonwealth of Massachusetts.

Accordingly, it is hereby ORDERED, for the reasons set forth in the attached Statement, that the applications submitted by BBOC for consent to retain the stock of Carver Bancorp, Inc; its interest in HPP; and its interests in RBA, Inc., RBA, LP, and LPT, through majority-owned subsidiaries be and hereby are approved subject to the following conditions:

1. That the investments be held indirectly through majority-owned Subsidiaries, each organized for the purpose of holding such investments;

2. That the investment in Carver stock be limited to that which the Bank currently holds;

3. That the investments, equity or debt, in HPP; RBA, Inc.; RBA, LP; and LPT be limited to that currently held;

4. That the Bank maintain a "well-capitalized" status pursuant to Part 325 of the FDIC's Rules and Regulations after deducting from its Tier 1 Capital the investment in equity securities of the Subsidiaries as well as the Bank's pro rata share of any retained earnings of the Subsidiaries, provided that the capital deduction shall not be used for purposes of determining whether the Bank is "critically undercapitalized," and that this deduction be reflected on the appropriate schedule of the Bank's Consolidated Reports of Condition and Income;

5. That the Bank may not extend credit to the majority-owned Subsidiaries or purchase any debt instruments issued by the majority-owned Subsidiaries;

6. That any of the Bank's Subsidiaries may not extend credit to any other subsidiary or purchase any debt instruments issued by any other subsidiary;

7. That neither the Bank nor the Subsidiaries may enter into any transaction with the Bank's executive officers, directors, principal shareholders, or related interests of such persons which relate to the activities of the Subsidiaries 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

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

Dated at Washington, D.C., this 1st day of December, 2000.

FEDERAL DEPOSIT INSURANCE CORPORATION

By:  John M. Lane
Associate Director
Division of Supervision


FEDERAL DEPOSIT INSURANCE CORPORATION

IN RE: The Boston Bank of Commerce Boston, Suffolk County, Massachusetts

Application Pursuant to Section 24 of the Federal Deposit Insurance Act for Consent to Indirectly Engage as Principal Through a Majority-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, the Boston Bank of Commerce, Boston, Suffolk County, Massachusetts (BBOC or the Bank), has filed applications with the Federal Deposit Insurance Corporation (FDIC). BBOC operates three wholly-owned subsidiaries: BBC Capital Market, Inc., BBC Realty Corp., and BBC Properties I, Inc. (collectively known as the Subsidiaries). BBOC requests the FDIC's consent to retain indirectly through its wholly-owned subsidiaries equity investments that are not permissible for a national bank or a subsidiary of a national bank.

Through its wholly-owned subsidiary, BBC Capital Market, Inc. (BBC Capital), BBOC owns 7.4 percent of the outstanding stock of Carver Bancorp, Inc. (Carver). BBOC acquired the Carver shares without first obtaining the prior approval of the FDIC in violation the FDIC's Rules and Regulations at 12 C.FR 362.4(a). Carver is traded on the American Stock Exchange and is the parent company of Carver Federal Savings Bank, New York, New York, a Federallychartered savings bank.

Through its wholly-owned subsidiary, BBC Realty Corp. (BBC Realty), BBOC maintains holdings in Historic Preservation Properties 1989 Limited Partnership (HPP), which was formed to acquire and redevelop historical properties. On April 9, 1996, the Division of Supervision approved BBOC's application to hold HPP, conditioned on divestiture of HPP by April 9, 1999. BBOC has fully amortized its investment and is applying to retain its passive 0.94 percent interest in HPP. The Bank proposes to transfer its interest in BBC Properties 1, Inc. (Properties I), a directly-owned, shell subsidiary, to BBC Realty and for BBC Realty to transfer its interest in HPP to Properties I. The Bank would maintain an indirect ownership interest in HPP through the second-tier subsidiary Properties 1.

Through BBC Realty, BBOC maintains holdings in Ruggles-Bedford Associates, Inc., (RBA, Inc.), Ruggles-Bedford Associates, LP (RBA, LP) and Ruggles-Bedford Lenders Participation Trust (LPT) (collectively, the Ruggles-Bedford Entities). RBA, Inc. is the general partner in RBA, LP, and RBA, LP is a partner in Columbia Plaza Associates (CPA). CPA engages in real estate redevelopment in Boston. BBOC is seeking to retain its passive interest in these investments, and no further contributions are planned.

These activities may not be a permissible activity for a national bank or a subsidiary of a national bank. Neither insured state banks nor their subsidiaries may engage as principal in an activity prohibited to 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.

Under Massachusetts General Laws Chapter 167F, 2(7), a Massachusetts-chartered bank is empowered to invest in the capital stock of a wholly-owned subsidiary corporation organized and operated solely for the purpose of performing functions that the bank itself is permitted to perform directly. The investment in the Carver stock is allowed under Massachusetts General Laws Chapter 167F, 2(4). The investment in the Ruggles-Bedford Entities is allowed under Massachusetts General Laws Chapter 167F, 2(31) with the consent of the Massachusetts Division of Banks pursuant to 209 CMR 47.07(3)(o)(2). The investment in HPP is allowed under Massachusetts General Laws Chapter 167F, 2(8).

The purchase of any equity stock or making of any equity investment entails risks related to the loss of investment, price volatility, and market liquidity. However, certain factors may lessen these risks. 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, making equity investments may not be unduly risky. Carver is a thrift holding company that is traded on a national securities exchange and, as a thrift holding company, is part of a highly regulated industry. BBOC holds a passive interest of less than I percent of HPP. The Bank has completely written off its investment in HPP and does not plan on making any further investment. The Bank's investment in the Ruggles-Bedford Entities is passive and small in relation to the Bank's capital (2.6 percent of Tier I Capital). BBOC does not plan on making additional investments in the RugglesBedford Entities. BBOC's ownership interest, equity or limited partnership, effectively insulates it from further liability.

As of June 30, 2000, BBOC had total assets of $150 million. Its financial condition and future earnings prospects were favorably resolved. BBOC meets the definition of "well-capitalized" within the meaning of Part 325 of the FDIC's Rules and Regulations.

The activities of the Subsidiaries of BBOC may involve greater risk than other, more traditional bank activities. To effectively insulate and minimize risk to the deposit insurance fund, the FDIC is imposing a condition requiring BBOC to maintain a "well-capitalized" status pursuant to Section 325.103 of the FDIC's Rules and Regulations after deducting from its Tier 1 capital the investment in equity securities of the Subsidiaries as well as the Bank's pro rata share of any retained earnings of the Subsidiaries, provided that the capital deduction shall not be used for purposes of determining whether the Bank is "critically undercapitalized." As such, BBOC must have a Tier I Leverage Capital Ratio of not less than 5.0 percent, a Tier 1 Risk-Based Capital Ratio of not less than 6.0 percent, and a Total Risk-Based Capital Ratio of not less than 10.0 percent after the required deduction. Also required is that such deduction be reflected on the appropriate schedule of the Bank's Consolidated Report of Condition and Income.

BBOC would be "well-capitalized" after deducting its investment in the Subsidiaries from its Tier 1 Capital.

The FDIC is also imposing a condition that BBOC or any of its Subsidiaries may not, without application, extend credit to any other of the Subsidiaries or purchase any debt instruments issued by any of the Subsidiaries. BBOC is not contemplating such transactions. Prior to any such transaction, approval by the FDIC through the application process is required.

Two members of BBOC's management have been elected to the Board of Directors of Carver. The management of BBOC has no insider involvement with HPP; RBA, Inc.; RBA, LP; or LPT. Nonetheless, the FDIC is imposing a condition requiring that for any transaction of the Bank and the Subsidiaries entered into with the Bank's executive officers, directors, principal shareholders, or related interests of such persons which relate to the Subsidiaries, the terms and conditions of such transactions must be substantially the same as those prevailing at the time for comparable transactions with persons not affiliated with the Bank.

Based on a careful review of all available facts and information, the FDIC has concluded that the Bank's current investments through its wholly-owned Subsidiaries in Carver; HPP; RBA, Inc.; RBA, LP; and LPT do not pose significant risks to the deposit insurance fund; therefore, approval of the application, subject to the conditions in the Order, is warranted.

ASSOCIATE DIRECTOR
DIVISION OF SUPERVISION
FEDERAL DEPOSIT INSURANCE CORPORATION



Last Updated 03/24/2011 Legal@fdic.gov