Decisions on Bank Applications
The First Citizens State Bank of Whitewater, Wisconsin
FEDERAL DEPOSIT INSURANCE CORPORATION
IN RE: The First Citizens State Bank of Whitewater, Wisconsin Whitewater, Wisconsin
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 Board of Directors ("Board") of the Federal Deposit Insurance Corporation ("FDIC") has fully considered all available facts and information relevant to section 24 of the Federal Deposit Insurance Act, 12 U.S.C. Sect. 1831a, and Part 362 of the FDIC's Rules and Regulations, relating to an application by The First Citizens State Bank of Whitewater, Wisconsin, Whitewater, Wisconsin ("FCSB"), for consent to indirectly engage as principal through a wholly-owned subsidiary in an equity investment activity that may not be permissible for a subsidiary of a national bank. FCSB has requested approval to purchase, through its wholly-owned subsidiary, 4.99 percent of the total outstanding shares of a particular bank holding company stock. The application is approved subject to certain conditions.
Accordingly, it is hereby ORDERED, for the reasons set forth in the attached Statement, that the application submitted by FCSB is approved subject to the following conditions:
l. That the investment in the unlisted bank holding company stock will be held indirectly through a majority-owned subsidiary; namely, Banco Services, Inc.
2. That this investment activity is only allowed as long as FCSB maintains and continues to meet all applicable minimum capital standards as defined in section 38 of the Federal Deposit Insurance Act.
3. That the consent granted herein is based on the facts and circumstances presented or otherwise known to the FDIC in connection with this request. FCSB shall notify the FDIC of any significant change in facts or circumstances. If the facts and circumstances change significantly, the FDIC shall have the right to alter, suspend, or withdraw its approval.
Dated at Washington, D.C., this 3rd day of December, 1996.
BY ORDER OF THE BOARD OF DIRECTORS
Jerry L. Langley
Executive Secretary
FEDERAL DEPOSIT INSURANCE CORPORATION
IN RE: The First Citizens State Bank of Whitewater, Wisconsin Whitewater, Wisconsin
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 ("FDI Act"), The First Citizens State Bank of Whitewater, Wisconsin, Whitewater, Wisconsin ("FCSB"), has filed an application with the Federal Deposit Insurance Corporation ("FDIC"). FCSB requests the FDIC's consent to engage in the acquisition and retention of unlisted bank holding company stock indirectly through a wholly-owned subsidiary.
The activity of making investments in unlisted bank holding company stock may not be a permissible activity for a national bank or a subsidiary of a national bank. State-chartered FDIC- insured banks may not engage as principal in an activity prohibited to nationally-chartered 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 fund.
The Wisconsin State Statute providing general authority for the proposed activity is contained in section 221.0321(2) (prior to July 1, 1996, section 221.295). On June 26, 1996, FCSB received approval from the State to invest in equity securities pursuant to section 221.0321(2).
The purchase of any equity stock entails risks related to the loss of investment, price volatility, and lack of market liquidity. However, intrinsic to the corporate charter of a bank holding company are factors that lessen investment risk. Bank holding companies are subject to a comprehensive and stringent regulatory structure. As such, they are required to obtain government approval to operate and to maintain regulatory minimum capitalization. They are also subject to periodic supervisory examination and are subject to enforcement jurisdiction.
The primary, and frequently only, asset of a single or multiple-bank holding company is the subsidiary bank or banks. In such cases the risk inherent from investing in the bank holding company stock is directly reliant on the financial condition of the subsidiary bank. However, bank holding companies may be invested in entities other than banks, which are authorized to engage in activities not permissible for a bank. The potential for additional risk from those other activities warrants the limitation of the bank's investment in any single unlisted bank holding company, or related entities, to preclude a concentration represented by the investment in relation to FCSB's Tier 1 capital.
Liquidity risk, in this instance the ability to convert the stock to cash, may be greater for a unlisted bank holding company stock than for a listed holding company stock since a unlisted stock presumably does not have the benefit of a readily accessible, active and organized market in which to sell the unlisted stock. The risk presented by the absence of an established market to liquidate such stock can be mitigated by limiting to a nominal amount the investment in any one unlisted bank holding company and, if applicable, for all unlisted bank holding companies in the aggregate.
As of June 30, 1996, FCSB had total assets of $83,867,000. FCSB is well-capitalized. Its financial condition and management are well regarded. FCSB's Investment Policy is generally conservative and adequately addresses guidelines for investment strategies. The investment activity being proposed provides for acceptable diversification.
Approval to purchase the specific requested amount of the stock of one bank holding company is granted subject to certain limiting conditions. The stock will be held indirectly by a majority-owned subsidiary and FCSB will continue to meet all applicable minimum capital standards as defined in section 38 of the FDI Act.
For the reasons outlined above, including the imposition of conditions, the Board of Directors has concluded that FCSB's indirect investments in unlisted bank holding company stocks does not, under the terms and arrangements proposed by FCSB, pose a significant risk to the Bank Insurance Fund and, therefore, approval of the application is warranted.
THE BOARD OF DIRECTORS
FEDERAL DEPOSIT INSURANCE CORPORATION