Decisions on Bank Applications
Berkshire County Savings Bank
FEDERAL DEPOSIT INSURANCE CORPORATION
RE: Berkshire County Savings Bank Pittsfield, Massachusetts
Application Pursuant to Section 24(d) of the Federal Deposit Insurance Act to Indirectly Continue Activities 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 Berkshire County Savings Bank, Pittsfield, Massachusetts ("the Bank"). The Bank requests the FDIC's consent for its wholly-owned subsidiaries, Forward Development Corporation ("FDC") and BCSB, Inc., ("BCSB"), to retain their interests in real estate. FDC directly owns 40 undeveloped acres ("Quashnet Woods") located on Route 28 in Mashpee, Massachusetts, and the Bank requests permission to hold this property through FDC until it is able to sell it. BCSB owns a limited partnership interest in a rehabilitated, mixed-use building located at 706 Huntington Avenue in Boston, Massachusetts ("706 Huntington"), and the Bank requests permission to hold this property through BCSB until it can be divested without a recapture of income taxes because it provides historic preservation tax credits.
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 activities 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 activities pose no significant risk to the deposit insurance fund. The Massachusetts General Code permits holding of real estate investments.
The Bank has been engaged in this activity since 1987, when BCSB purchased a limited partnership interest in 706 Huntington Limited Partnership. The partnership's activity is confined to the rehabilitation and management of the mixed use building containing retail space and apartments. FDC acquired Quashnet Woods in 1988. The Bank has expressed its intention not to become involved in any further real estate investment activities. No major additional expenditures in connection with the properties are planned.
The Bank is pursuing sale of Quashnet Woods and will pursue divestiture of 706 Huntington once the holding period required to realize income tax credits has expired, and requests permission to hold these investments until, in the case of Quashnet Woods, market conditions improve and it can be sold without a loss, and until, in the case of 706 Huntington, the required holding period has expired. Currently, the market is soft, and near term divestiture under such conditions would likely result in further loss.
The Bank, which meets the definition of "adequately capitalized" within the meaning of Part 325 of the FDIC's Rules and Regulations, is in compliance with applicable capital standards. The Bank's interests in Quashnet Woods and 706 Huntington are only 2.17% of the Bank's Tier 1 capital, and the Bank would continue to be "adequately capitalized" in the event its entire interest in the investments were deducted. In connection with this application, the FDIC has taken into consideration the satisfactory financial and managerial resources and future earnings prospects of the Bank.
Having found that the activities in question involve the retention of investments that did not require FDIC review or consent at inception, but do now because of statutory revision; that the Bank's interests in Quashnet Woods and 706 Huntington are now and are expected in the future to represent a nominal portion of the Bank's capital; that the Bank's financial condition and management are satisfactory; that the State authority authorizes the activities; and that the Bank is in compliance with applicable capital standards, the FDIC concludes that the retention of the interests in Quashnet Woods and 706 Huntington does not pose a significant risk to the Bank Insurance Fund, and therefore may be and hereby is approved subject to the following conditions. After considering the volatility and other risks associated with real estate activities, the FDIC imposes these conditions for prudential reasons, including the potential for improper transactions which are not at arm's length.
The Bank's real estate investments shall be limited to its current interests; the Bank shall continue to meet all applicable capital standards; the Bank shall divest itself of all its interest in Quashnet Woods within five years of the date of the approval letter, and if it has not divested within three years of the date of the approval letter, the Bank shall submit a divestiture plan; the Bank shall divest itself of all of its interest in 706 Huntington within 2 years of the expiration of the holding period required to realize the tax credits, and if it has not divested within one year of such expiration, the Bank shall submit a divestiture plan; and the FDIC shall have the right to alter, suspend or withdraw its approval if circumstances change significantly. In addition, the Bank shall prohibit the involvement of insiders or their related interests in the real estate activities, either directly or indirectly, without the prior written approval of the FDIC, and transactions relating to Quashnet Woods or 706 Huntington shall comport with the restrictions of Sections 23A and 23B of the Federal Reserve Act, 12 U.S.C. SS 371c and 371c-1, to the same extent as though FDC and BCSB were affiliates of the Bank as defined in Sections 23A and 23B.
Finally, the FDIC notes that the foregoing approval is unique to this application, that it was significantly influenced by the Bank's acquisition of the interests in real estate prior to the effective date of Section 24(d), and that its view of de novo acquisition of such interests would likely be different.
DIVISION OF SUPERVISION