Application Pursuant to Section 24 of the
Federal Deposit Insurance Act to Indirectly Continue
Activity That May Not Be Permissible for a National Bank
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 Oritani Savings Bank, Hackensack, New Jersey ("the Bank"). The Bank requests FDIC consent to allow its wholly-owned subsidiaries, Monfred, Inc. ("Monfred") and Ormon, Inc. ("Ormon") to continue holding and leasing realty properties located in the States of New Jersey and Pennsylvania. The real estate investments consists of sixteen properties including apartment units, single family residential homes, and a shopping center located in various jurisdictions in New Jersey and Pennsylvania.
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. New Jersey banking statutes permit the holding of subject real estate investments.
The Bank does not engage in impermissible real estate activities beyond the subject investments and Bank management has indicated that it has no intention of engaging in any additional real estate activities.
The Bank meets the definition of "Well capitalized" within the meaning of Part 325 of the FDIC's Rules and Regulations. The Bank's investment in Monfred and Ormon represents approximately 14% of the Bank's Tier 1 capital as of September 30, 1997, and the Bank would continue to be "Well capitalized" in the event its entire investment in Monfred and Ormon 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 be 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 risks posed by real estate investment activities will be imposed, the subsidiaries 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 conditions specified below. The conditions are imposed for prudential reasons due to the volatility and other risks that 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, Monfred and Ormon:
(1) The Bank shall take the necessary steps to operate the Subsidiary in a manner so as to ensure its separate corporate existence as a wholly-owned subsidiary that:
(a) is adequately capitalized;
(b) is physically separate and distinct in its operations from the operations of the bank;
(c) maintains separate accounting and other corporate records;
(d) observes such formalities as holding 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 it 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) The Bank shall be well capitalized, as defined in Section 325.103(b)(l) of the FDIC's Rules and Regulations, after deduction of the Bank's investment as well as the Bank's pro rata share of any retained earnings in the Subsidiary from Tier I capital.
(3) That the Bank's indirect real estate investment activities, including equity interest, debt obligations of Monfred or Ormon held by the Bank, Bank guaranties of debt obligations issued by Monfred or Ormon, extensions of credit or commitments of credit to Monfred or Ormon or to any third party for the purpose of making a direct investment in Monfred or Ormon, or making an investment in any investment in which Monfred or Ormon has an interest, shall be limited to that which is currently held.
(4) Extensions of credit by the Bank to finance sales of assets by the Subsidiaries do not involve more than the normal degree of risk of repayment and are extended on terms that are substantially similar to those prevailing at the time for comparable transactions with or involving unaffiliated persons or companies.
(5) That the Bank, Monfred and Ormon not engage in any transactions with insiders of the Bank or their related interests which relate to the subsidiaries real estate investment activities without the prior written consent of the appropriate DOS Regional Director; and,
(6) That the Bank shall not condition any loan on the purchase of real estate from Monfred or Ormon.
(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.
Finally, FDIC notes that the foregoing approval is unique to this application, that it was significantly influenced by 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.