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Central Carolina Bank and Trust Company

March 17, 1997

Board of Directors
Central Carolina Bank and Trust Company
Post Office Box 931
Durham, North Carolina 27702

Members of the Board:

We have reviewed the request of Central Carolina Bank and Trust Company, Durham, North Carolina ("the Bank") to indirectly continue activities through the Bank's wholly-owned subsidiary, Southland Associates, Inc. ("Southland"), that may not be permissible for a subsidiary of a national bank. The application, dated December 16, 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 Atlanta Regional Office December 20, 1996.

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

(1) That the Bank shall take the necessary steps to operate Southland in a manner so as to ensure its separate corporate existence as 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 board of directors' meetings,

(e) maintains 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 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;

(2) Except for the additional expenditure of $20,000 for lot development expense, that the Bank's indirect real estate investment activities, including equity interests, debt obligations of Southland held by the Bank, Bank guaranties of debt obligations issued by Southland,extensions of credit or commitments of credit to Southland or to any third party for the purpose of making a direct investment in Southland, or making an investment in any investment in which Southland has an interest, shall be limited to that which is currently held;

(3) That full divestiture of the real estate investment activities of Southland be accomplished on or before December 31, 1999;

(4) That the Bank shall not condition any loan on the purchase of real estate from Southland;

(5) That all future transactions between the Bank and Southland shall be made in accordance with the restrictions of Section 23A and 23B of the Federal Reserve Act, 12 U.S.C. 371c and 37lc-l, to the same extent as though Southland 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 investments held by Southland, 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;

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

(7) 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 John F. Carter or Review Examiner Charles A. Mellein in the Atlanta Regional Office at (404) 817-1300.

Steven K. Scholzen
Acting Associate Director


FEDERAL DEPOSIT INSURANCE CORPORATION

RE: Central Carolina Bank and Trust Company Durham, North Carolina

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 Central Carolina Bank and Trust Company, Durham, North Carolina ("the Bank"). The Bank requests FDIC consent to allow its wholly-owned subsidiary, Southland Associates, Inc. ("Southland"), to retain its investments for purposes of divestiture of those real estate investments in a timely manner, but no later than December 31, 1999. The real estate investments consist of eighty vacant residential lots in Durham, North Carolina.

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. North Carolina banking statutes permit the holding of subject real estate investment.

The Bank and subsidiary have made reasonable efforts to sell the remaining realty; however, the current state of the market has contributed to the lack of success to date. The Bank does not engage in real estate activities beyond the interests in Southland. 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 consolidated investment in the subsidiary represents 0.7 percent of the Bank's Tier 1 capital as of December 31, 1996, and the Bank would continue to be "Well capitalized" in the event its entire investment in the subsidiary 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 he 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 risk posed by real estate investment activities will he 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 Southland:

That the Bank shall take the necessary steps to operate Southland in a manner so as to ensure its separate corporate existence as 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 board of directors' meetings,

(e) maintains 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 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;

Except for the additional expenditure of $20,000 for lot development expense, that the Bank's indirect real estate investment activities, including equity interests, debt obligations of Southland held by the Bank, Bank guaranties of debt obligations issued by Southland, extensions of credit or commitments of credit to Southland or to any third party for the purpose of making a direct investment in Southland, or making, an investment in any investment in which Southland has an interest, shall be limited to that which is currently held,

That full divestiture of the real estate investment activities of Southland be accomplished on or before December 31, 1999;

That the Bank shall not condition any loan on the purchase of real estate from Southland;

That all future transactions between the Bank and Southland shall be made in accordance with the restrictions of Section 23A and 3B of the Federal Reserve Act, 12 U.S.C. 371c and 371c-1 1, to the same extent as though Southland 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.i held hi Southland, 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 the prevailing at the time for comparable transactions,

That the Bank and Southland shall not engage in any transactions with insiders of the Bank or their related interests which relate to Southland'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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