FEDERAL DEPOSIT INSURANCE CORPORATION
IN RE: Institution For Savings in Newburyport and
its Vicinity
Newburyport, Essex 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 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. § 1831a, and Part 362 of the
FDIC's Rules and Regulations, relating to the application by Institution For Savings in
Newburyport and its Vicinity, Newburyport, Essex County, Massachusetts ("ISN" or
"the Bank"), for consent to indirectly retain through a wholly-owned subsidiary
the stock of three bank holding companies that are not listed on national securities
exchanges. This is an activity that may not be permissible for a subsidiary of a national
bank. ISN has sought permission to continue to hold each of the stocks, and not to obtain
additional unlisted securities. These investments are authorized by the Massachusetts
General Laws. The Board has concluded that the application should be approved subject to
certain conditions.
Accordingly, it is hereby ORDERED, for the reasons set forth in the attached Statement,
that the application submitted by ISN for consent to retain the stock of First & Ocean
Bancorp, Cambridge Bancorp, and Grand Bank Corporation, through a wholly-owned subsidiary,
the 1820 Security Corporation, be and hereby is approved, subject to the following
conditions:
(1) That the investment in the stock be held indirectly through a single,
majority-owned subsidiary organized for the purpose of holding such investments;
(2) That neither ISN nor the majority-owned
subsidiary may enter into any transaction with the Bank's executive officers, directors,
principal shareholders, or related interests of such persons which relate to the
majority-owned subsidiary's activities 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
(3) That in the event the facts and circumstances presented or otherwise known to the
FDIC in connection with this request change significantly, the FDIC retains the ability to
alter, suspend, or withdraw its approval.
Dated at Washington, D.C., this 10th day of August, 1999.
BY ORDER OF THE BOARD OF DIRECTORS
James D. LaPierre
Deputy Executive Secretary
FEDERAL DEPOSIT INSURANCE CORPORATION
IN RE: Institution For Savings in Newburyport and its Vicinity
Newburyport, Essex 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
Institution For Savings in Newburyport and its Vicinity, Newburyport, Essex County,
Massachusetts ("ISN" or "the Bank"), has filed an application with the
Federal Deposit Insurance Corporation ("FDIC"). ISN requests the FDIC's consent
to retain indirectly through a wholly-owned subsidiary, the 1820 Security Corporation
("Subsidiary"), the stock of three bank holding companies that are not listed on
a national securities exchange. The investment policy of ISN limits aggregate common stock
positions to a maximum of 100 percent of the Bank's surplus. That policy provides for
industry concentration limits of 20 percent of total stock holdings; however, bank stocks
are exempted. Furthermore, the policy limits individual stock positions to 10 percent of
total stock holdings. Management has stated that the stocks will be retained for dividend
income and future price appreciation, and ISN is not seeking permission to obtain
additional unlisted securities.
The activity of making investments in the stock of bank holding companies not listed on
a national securities exchange 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.
On February 2, 1993, the Regional Director of the Boston Region approved ISN's Notice
to invest in listed common or preferred stock or shares of an investment company. The
Regional Director, acting under delegated authority, found that acquiring and retaining
the listed stock and/or registered shares does not pose a significant risk to the Bank
Insurance Fund. This approval was subject to limiting the maximum investment in listed
and/or registered shares to 100 percent of Tier 1 capital and ISN following reasonable
procedures to limit concentrations in listed stocks to provide for risk diversification.
Massachusetts law empowers a state-chartered bank to invest in the capital stock of a
bank holding company. 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.
Massachusetts law does not restrict the amount that may be invested in a banking company
located in the New England states.
The purchase of any equity stock entails risks related to the loss of investment and
price volatility. However, certain factors may lessen these risks.
As of December 31, 1998, ISN had total assets of $341 million. Its financial condition,
future earnings prospects, and management are regarded as strong. ISN has a set
of1hvestment guidelines to manage prudently the investment through its wholly-owned
subsidiary. ISN meets the definition of "well-capitalized" within the meaning of
Part 325 of the FDIC's Rules and Regulations.
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, investing in equity securities
may not be unduly risky. ISN has successfully demonstrated its ability to manage the
investment in these bank holding company stocks. The Bank's investment is small at
approximately 1.7 percent of Tier 1 Capital. The Bank has held the stocks since 1987 at
the latest, with one holding dating from 1907, and there is significant unrealized
appreciation. ISN's application is limited to the stock of three bank holding companies
with no future purchases contemplated. Such institutions are part of a highly regulated
industry, which provides some investment quality assurance for unlisted shares of these
financial-related corporations.
Management of ISN has indicated that they have no interest in any insider involvement
with the bank holding companies. However, the FDIC is imposing a condition requiring that
for any transactions of the Bank and the Subsidiary entered into with the Bank's executive
officers, directors, principal shareholders, or related interests of such persons which
relate to the Subsidiary, 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, including the stated
intent of ISN, the Board has concluded that the proposed investments through a
wholly-owned subsidiary in the common stock of First & Ocean Bancorp, Cambridge
Bancorp, and Grand Bank Corporation do not pose a significant risk to the Bank Insurance
Fund and, therefore, approval of the application subject to the conditions in the Order,
is warranted.
THE BOARD OF DIRECTORS
FEDERAL DEPOSIT INSURANCE CORPORATION
