Application Pursuant to Section 24 of the Federal
Deposit Insurance Act for Consent to Indirectly Engage as Principal
Through a Majority-Owned Subsidiary in Investment Activities That May Not
Be Permissible for a Subsidiary of a National Bank
The Federal Deposit Insurance Corporation (FDIC)
has fully considered all available facts and information relevant to the
application by the Norway Savings Bank, Norway, Maine (Bank), pursuant to
Section 24 of the Federal Deposit Insurance Act, 12 U.S.C. § 1831a, and
Part 362 of the FDIC's Rules and Regulations, for consent to indirectly
retain through a majority-owned subsidiary $2,486,188 of equity interests
in four venture capital and private equity funds managed by Ridgewood
Capital, a private money management firm based in Ridgewood, New Jersey.
These investments are non-listed private placement investments focused on
financing of power generation facilities and venture capital activities.
These are activities that may not be permissible for a subsidiary of a
Accordingly, it is hereby ORDERED, for the
reasons set forth in the attached Statement, that the application
submitted by the Bank for consent to indirectly retain through a
majority-owned subsidiary (Subsidiary) existing Ridgewood Capital venture
capital and private equity funds be and hereby is approved, subject to the
(1) The equity investments in non-listed private placements in venture
capital and private equity funds currently held by the Bank be held
indirectly through a single, majority-owned subsidiary organized for the
purpose of holding such investments (the Subsidiary);
(2) The Subsidiary is a corporation that:
i. Meets applicable statutory or regulatory capital requirements and has
sufficient operating capital in light of the normal obligations that are
reasonably foreseeable for a business of its size and character within the
ii. Maintains separate accounting and other business records;
iii. Observes separate business entity formalities such as separate board
of directors' meetings; and
iv. Conducts business pursuant to independent policies and procedures
designed to inform third parties that the Subsidiary is a separate
organization from the Bank, and that the Bank is not responsible for and
does not guarantee the obligations of the Subsidiary.
(3) The Bank shall limit its indirect equity investment activity through
the Subsidiary to that which is currently held;
(4) Without prior written approval of the FDIC's Regional Director of the
Boston Regional Office, neither the Bank nor any of its subsidiaries may
extend credit to the Subsidiary, purchase any debt instruments issued by
the Subsidiary, or originate any other transaction that is used to benefit
(5) Neither the Bank nor the Subsidiary may enter into any transaction
with the Bank's executive officers, directors, principal shareholders, or
related interests of such persons which relate; to the Subsidiary's
activities unless the transactions are on terms and conditions that are
substantially the same as those prevailing at the time for comparable
transactions with persons not affiliated with the Bank; and
(6) In the event the facts and circumstances presented or otherwise known
to the FDIC in connection with this request change significantly, the FDIC
retains the ability to alter, suspend, or withdraw its approval.
Dated at Washington, D.C., this 21st day of August, 2001.
FEDERAL DEPOSIT INSURANCE CORPORATION
John M. Lane
Division of Supervision
FEDERAL DEPOSIT INSURANCE CORPORATION
IN RE: Norway Savings Bank
Application Pursuant to Section 24 of the Federal Deposit Insurance Act
for Consent to Indirectly Engage as Principal Through a Majority-Owned
Subsidiary in Investment Activities That May Not Be Permissible for a
Subsidiary of a National Bank
Pursuant to the provisions of Section 24 of the
Federal Deposit Insurance Act, Norway Savings Bank, Norway, Maine (Bank),
has filed an application with the Federal Deposit Insurance Corporation
(FDIC). The Bank requests the FDIC's consent to indirectly retain through
a majority-owned subsidiary $2,486,188 of non-listed, privately placed
equity security interests in venture capital and private equity funds
management Ridgewood Capital, a private money management firm located in
Ridgewood, New Jersey. These funds are non-listed, limited liability,
private placement investments focused in venture capital activities and
power generation facilities. The Bank has held these investments for some
time with no adverse affect upon the overall condition of the Bank noted.
The Bank's investment represents less than five percent of its Tier 1
capital. These are activities that may not be permissible for a subsidiary
of a national bank.
As of March 31, 2001, the Bank had total assets
of $374.7 million. Its financial condition, future earnings prospects, and
management are regarded as satisfactory. The Bank meets the definition of
"well-capitalized" within the meaning of Part 325 of the FDIC's
Rules and Regulations. The Bank will establish a new, majority-owned
subsidiary (Subsidiary) to conduct the activity. The Subsidiary will be
organized as a corporation under Maine law, and the proposed investment is
permissible under Title 9-B § 419 of the Maine Revised Statutes.
Neither insured state banks nor their
subsidiaries may engage as principal in an activity prohibited for
national banks unless consent has been obtained 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 funds.
Equity investing may be somewhat riskier than
lending, but it requires the application of financial analysis, economic
assessment, and business judgment similar to that required for lending.
Subject to prudent supervision and judgment, investing in equity
securities may not be unduly risky.
The FDIC is imposing a condition that neither the
Bank nor any of its subsidiaries may extend credit to the Subsidiary,
purchase any debt instruments issued by the Subsidiary, or originate any
other transaction that is used to benefit the Subsidiary without the prior
written approval of the FDIC's Regional Director of the Boston Region.
This does not prohibit the Bank from extending credit to a third party who
may do business with the fund company so long as the transactions are
carried out on terms and conditions that are substantially similar to
those prevailing at the time for comparable transactions with entities
other than the fund company.
In order to ensure prudent operational
safeguards, the Subsidiary should be operated in a manner to ensure
corporate separation between it and the Bank. This is to provide
reasonable assurance that the assets of the Bank will not be subject to
liability from a party seeking to hold the Bank responsible for the
actions of the Subsidiary. Accordingly, the FDIC finds it appropriate to
impose separateness conditions.
Finally, in order to prevent potential abuses,
the FDIC is imposing a condition that transactions between the Bank or the
Subsidiary and any of the Bank's insiders or their related interests must
be on an arm's length basis.
The final order does not require that the Bank
deduct its investment in the Subsidiary from Tier 1 capital. It is the
FDIC's opinion that given the overall circumstances, including the fact
that the investment has been held directly by the Bank for several years
with no adverse implications noted, the passive nature of the investment,
and the fact that the investment will be held by a subsidiary that will
maintain corporate separateness from the Bank, it is not necessary to
impose a capital deduction in this instance to protect the deposit
insurance funds from significant risk.
Based on a careful review of all available facts and information,
including the investment limits within the Bank's proposal, the FDIC has
concluded that the proposed investment does not pose a significant risk to
the Bank Insurance Fund and therefore, approval of the application subject
to the conditions in the Order is warranted.
DIVISION OF SUPERVISION
FEDERAL DEPOSIT INSURANCE CORPORATION