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Citizens-Union Savings Bank


RE: Citizens-Union Savings Bank Fall River, Massachusetts

Application Pursuant to Section 24(d) 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 Citizens-Union Savings Bank, Fall River, Massachusetts ("the Bank"). The Bank requests the FDIC's consent for its wholly owned subsidiary, 1851 Corporation ("1851") to retain its investment in a 48-unit condominium complex, located in New Bedford, Massachusetts until it is able to divest itself of this holding. 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. The Massachusetts General Code permits holding of real estate investments.

The Bank and 1851 have been engaged in this activity since 1986, when 1851 purchased a 20% joint venture general partnership interest in the Shawmut Manor Condominium Partnership. This activity has been confined to the Bank's market area and involves the acquisition and condominium conversion of a 48-unit apartment facility. The property is 1851's sole real estate holding, and the Bank has expressed no intention of conducting further real estate investment activities through 1851. Furthermore, the Bank and 1851 do not plan any major additional expenditures in connection with the property. As of March 31, 1995, twenty-one of the units had been sold. Twenty-five of the remaining units were rented with the remaining two vacant. The Bank has encouraged the partnership to sell all remaining units and requests holding this investment until market condition improves, and the property can be sold without a loss. Currently, the market is soft, and near term divestiture under such conditions would likely result in a loss.

The Bank, which meets the definition of "well capitalized" within the meaning of Part 325 of the FDIC's Rules and Regulations, is in compliance with applicable capital standards. The book value of the real estate investment is only 2% of the bank's Tier 1 capital, and the Bank would continue to be "well capitalized" in the event the entire investment were deducted. In connection with this application, the FDIC has also taken into consideration the favorable financial and managerial resources and future earnings prospects of the institution.

Having found that the activity in question involves the retention of an investment that did not require FDIC review or consent at inception, but does now because of statutory revision; that the property is now and is expected in the future to represent a nominal portion of the Bank's capital; that the Bank's financial condition and management are adequate; that the State authority authorizes the activity; and that the Bank is in compliance with applicable capital standards -- the FDIC concludes that the retention of the real estate investment does not pose a significant risk to the Bank Insurance Fund, and therefore may be and hereby is approved subject to the following restrictions.

The Bank's real estate investments will be limited to those which are currently held by 1851, the Bank will continue to meet all applicable capital standards, the Bank shall obtain the FDIC's approval to continue to hold the property if 1851 has not divested itself of the property within five years of the date of the approval letter; and the FDIC will have the right to alter, suspend or withdraw its approval if circumstances change significantly. In addition, transactions between the Bank and 1851 that would be covered transactions for purposes of sections 23A and 23B of the Federal Reserve Act, 12 U.S.C. §§ 371c and 371c-1, if 1851 were an affiliate of the Bank under Sections 23A and 23B, shall not exceed the amount limitations and shall be made in accordance with the other restrictions of sections 23A and 23B to the same extent as though 1851 were an affiliate of the Bank.

Finally, the FDIC notes that the foregoing approval is unique to this application, that it was significantly influenced by 1851's acquisition of the partnership interest prior to the effective date of Section 24(d), and that its view of de novo acquisition of such property might well be different.