Decisions on Bank Applications
Branch Banking and Trust Company
FEDERAL DEPOSIT INSURANCE CORPORATION
RE: Branch Banking and Trust Company Winston-Salem, 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
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 Branch Banking and Trust Company, Winston-Salem, North Carolina ("the Bank"). The Bank requests FDIC consent to allow its wholly-owned subsidiary, Peoples Service Corporation ("PSC"), to retain its investment interest in realty property for purposes of divestiture of the real estate investment in a timely manner, but no later than December 19, 1997.
The real estate was acquired prior to 1993 in conjunction with the Bank's acquisition of other financial institutions. The property consists of 1.578 acres of unimproved commercial land.
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 statutes permit the holding of subject real estate investment through a subsidiary.
The Bank has made a reasonable effort to sell the remaining realty which is adjacent to a 19unit office condominium park previously owned by PSC. PSC is aggressively trying to liquidate the land at no less than current book value. The Bank does not engage in real estate activities beyond the interests of PSC and has no intention of developing the property or engaging in other real estate investment 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 PSC represents approximately 0.05% 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 PSC 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 PSC'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 PSC:
- That the Bank remain well-capitalized during the divestiture period, which is extended to December 19, 1997;
- That the investment in real estate held by PSC be limited to the property currently held and that any plan to develop this property will be subject to prior approval by the FDIC;
- That the Bank may not extend credit to any borrower to acquire real estate from PSC unless it is consistent with safe and sound banking practice and does not involve more than the normal degree of risk of repayment; 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 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