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De Witt Bank and Trust Company


RE: De Witt Bank and Trust Company De Witt, Arkansas

Application Pursuant to Section 24(d) of the Federal Deposit Insurance Act to Indirectly Continue an Activity That May Not Be Permissible for a National Bank


Pursuant to the provisions of section 24(d) of the Federal Deposit Insurance Act, an application has been filed with the FDIC by De Witt Bank and Trust Company, De Witt, Arkansas (De Witt). De Witt requests the FDIC's consent to continue to hold, via a wholly-owned subsidiary, a 165-acre farm.

In general, real estate investments 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. The FDIC may not grant its consent unless the bank is in compliance with applicable capital standards and the FDIC determines that the activity poses no significant risk to the appropriate deposit insurance fund. State law authorizes the activity.

The Bank is requesting to transfer the aforementioned property into a wholly-owned subsidiary, DBT Realty Company, Inc., (DBT) to be organized solely for the purpose of holding, maintaining, and leasing the 165-acre farm. The Bank acquired the farm on December 13, 1990, through a property exchange for land which the bank had owned from the time its charter was first granted.

The farm has been under an existing lease for farming purposes. After the property is transferred to DBT, the subsidiary plans to lease the land on a crop-sharing basis, approximately 25% to DBT, with all farming expenses to be paid by the tenant. DBT will continue to pay real estate taxes and insurance and expect continued profitability for this activity. De Witt meets the definition of "well capitalized" within the meaning of Part 325 of the FDIC's Rules and Regulations, and is in compliance with applicable capital standards. De Witt's investment in the subsidiary will be less than 1% of its Tier 1 capital, and the bank would continue to be well capitalized in the event the entire investment were lost. The investment will be limited to the 165-acre farm. De Witt is in overall sound condition and is satisfactorily managed. Based on the foregoing, the FDIC has determined that retention of the investment does not present a significant risk to the deposit insurance fund.

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 Bank's interest in real estate 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 interest in real estate does not pose a significant risk to the Bank Insurance Fund, and therefore may be and hereby is approved subject to the following restrictions. These restrictions are imposed for prudential reasons due to the volatility and other risks which are inherent in real estate activities as well as to mitigate any potential insider conflicts of interests.

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.

The Bank's real estate investments shall be limited to its current investment; the bank shall adopt appropriate polices and procedures governing the operations; the Bank shall continue to meet all applicable capital standards; that the Bank maintain an independent subsidiary structure and operations; DBT shall not engage directly or indirectly in real estate investments with insiders or their related interest without the prior written consent of the FDIC; that transactions between De Witt and DBT will be subject to Sections 23A and 23B of the Federal Reserve Act, 12 U.S.C. S371c and § 371c-1, to the same extent as if DBT were an affiliate of the Bank as defined under Section 23A and 23B, and the FDIC shall have the right to alter, suspend or withdraw its approval if circumstances change significantly.

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