Decisions on Bank Applications
Cape Cod Cooperative Bank
FEDERAL DEPOSIT INSURANCE CORPORATION
RE: Cape Cod Cooperative Bank Yarmouth Port, Massachusetts
Application Pursuant to Section 24(d) of the Federal Deposit Insurance Act For Consent to Indirectly Engage as Principal in Real Estate Activities Which may Not Be Permissible for a National Bank
Pursuant to the provisions of Section 24 of the Federal Deposit Insurance Act, the Cape Cod Cooperative Bank, Yarmouth Port, Massachusetts (the "Bank"), has filed an application with the Federal Deposit Insurance Corporation ("FDIC"). The Bank requests the FDIC's consent to continue to hold indirectly through a wholly-owned subsidiary three properties known as the Post Office Building, the Main Post and Beam Building and the Krook Building.
The activity of indirectly holding real estate investment properties may not be permissible for a national bank or for 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 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.
The three properties are located in close proximity to one of the Bank's branch offices. The Post Office Building is adjacent to the branch banking office and shares architectural design and a parking lot with the branch. Due to the close proximity and affinity between the branch banking office and the Post Office Building, the Bank wishes to retain ownership of the Post Office Building indefinitely. The other two properties will be divested by the Bank within a reasonable period of time. The Bank's investment in the three properties totals $513,100, which represented 3.7% of the Bank's Tier 1 capital as of December 31, 1995. The Bank does not intend to make any additional direct or indirect investment in real estate.
In connection with this application, the FDIC has reviewed available information and has also taken into consideration the 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 limitations and restrictions will be imposed to address the risks of owning a subsidiary that engages in real estate investment activities, the Bank's continued holding of the three properties will not pose significant risks to the Bank Insurance Fund or present material safety and soundness concerns. The Bank is in compliance with applicable capital standards.
Based upon careful evaluation of all available facts and information, the FDIC has concluded that approval of the application is warranted subject to the conditions discussed below. These conditions are imposed for prudential reasons due to the volatility and other risks which are inherent in real estate investment activities in general and thus ameliorate any risk to the deposit insurance fund.
The conditions imposed will require:
- that the Bank transfer the Post Office Building, the Main Post and Beam Building, the Krook Building and the associated land for each of the buildings to a subsidiary;
- that the subsidiary be adequately capitalized, be separate and distinct from the operations of the Bank, maintain separate accounting and other corporate records, conduct separate board of directors meetings, and conduct business pursuant to separate policies designed to inform customers and prospective customers that the subsidiary is a separate entity from the Bank;
- that the Bank's indirect real estate investment activity through the wholly-owned subsidiary be limited to that which is currently conducted, inclusive of the properties to be transferred to the subsidiary, and that the Bank not engage in any additional real estate investment activity or make any additional investment (including equity, debt, or extensions of credit) in the subsidiary without the prior written consent of the FDIC;
- that the Bank continue to meet applicable capital standards as prescribed by the FDIC. The FDIC shall require the Bank's capital level, after deducting the Bank's investment, to equal or exceed the level required for a "well capitalized" institution pursuant to Section 325.103(b)(1) of the FDIC's Rules and Regulations;
- that the subsidiary divest the Main Post and Beam Building and the Krook Building within 18 months of the date of the approval letter;
- that the subsidiary may continue to hold the Post Office Building indefinitely;
- that neither the Bank nor the subsidiary become engaged with insiders or their related interests in any transaction related to any real estate investment activity, without the prior written consent of the FDIC;
- that transactions between the Bank and the subsidiary comply with the restrictions of Sections 23A and 23B of the Federal Reserve Act, to the same extent as though the subsidiary were an affiliate of the Bank, except that the collateral requirements of Section 23A shall not apply to loans made by the Bank to facilitate the sale of the real estate investments held by the subsidiary, provided the loans are consistent with safe and sound banking practices, do not present more than the normal degree of risk of repayment, and the credit is extended on terms and under circumstances, including credit standards, that are substantially the same, or at least as favorable to the Bank, as those prevailing at the time for comparable transactions; and,
- that the consent granted herein is based on the facts and circumstances presented or known to the FDIC in connection with this request, and that the Bank notify the FDIC of any significant change in facts or circumstances. The FDIC's action is conditioned upon its ability to alter, suspend, or withdraw its approval in the event the facts and circumstances presented in the application change significantly.
DIVISION OF SUPERVISION