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Centennial Bank

FEDERAL DEPOSIT INSURANCE CORPORATION

RE: Centennial Bank Olympia, Washington

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

STATEMENT

Pursuant to the provisions of section 24 of the Federal Deposit Insurance Act and Part 362 of the Federal Deposit Insurance Corporation's (the "FDIC") Rules and Regulations, an application has been filed with the FDIC by Centennial Bank, Olympia, Washington (the "Applicant"). The Applicant requests the FDIC's consent for its wholly-owned subsidiary, ELD, Inc., (the "Subsidiary") to retain its existing investment in a retail shopping center (the "Commercial Property").

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 appropriate deposit insurance fund.

The Subsidiary acquired a one-third interest in the Commercial Property in 1990, which represents an indirect investment of 0.5% of the Applicant's equity capital. The Applicant obtained the appropriate state approval to acquire the Commercial Property. Construction of the shopping center is complete and the Applicant does not anticipate further investments. The Subsidiary's investment in the Commercial Property has been profitable. The Applicant has informed the FDIC that, pursuant to an agreement with a bank regulatory agency, it has agreed to divest itself of its indirect interest in the Commercial Property within five years. The Applicant is in compliance with applicable capital standards and meets the definition of "well capitalized" within the meaning of Part 325 of the FDIC's Rules and Regulations. The FDIC has also taken into consideration the financial and managerial resources, future earnings prospects of the Applicant, and the risks involved relative to the Subsidiary's continued holding of the Commercial Property.

Having determined that the Subsidiary's investment in the Commercial Property did not require FDIC review or consent at inception, but does so now under Section 24; that the investment is now and is expected in the future to represent a nominal portion of the Applicant's capital; that the Applicant's financial condition and management are satisfactory; that the state authority authorizes the activity; that the Applicant has agreed to divest itself of its interest in the Commercial Property within five years pursuant to an agreement with another bank regulatory authority; that the retention of the Commercial Property for a period not to exceed five years is not economically unsound in terms of risk and rate of return and; and that the Applicant is in compliance with applicable capital standards -- the FDIC concludes that the Subsidiary's continued holding of the Commercial Property for a period not to exceed five years does not pose a significant risk to the Bank Insurance Fund, and therefore may be and hereby is approved subject to the restrictions discussed below.

The Applicant 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 upon receiving such notification. In addition, transactions between the Applicant and the Subsidiary that would be covered transactions for purposes of Sections 23A and 23B of the Federal Reserve Act, 12 U.S.C. 371c and 371-c, if the Subsidiary were an affiliate of the Applicant under Sections 23A and 23B, shall not exceed the amount limitations and shall be made in accordance with the other restrictions of Sections 23A and 23B to the same extent as though the Subsidiary were an affiliate of the Applicant.

Finally, the FDIC notes that the foregoing approval is unique to this application, that it was significantly influenced by the Subsidiary's acquisition of the Commercial Property prior to the effective date of Section 24, and that its view of a de novo acquisition of such property might well be different.

ASSOCIATE DIRECTOR
DIVISION OF SUPERVISION



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