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Provident Savings Bank


RE: Provident Savings Bank Jersey City, New Jersey

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 Provident Savings Bank, Jersey City, New Jersey ("the Bank"). The Bank requests the FDIC',s consent for its wholly-owned subsidiaries, Beehive Investment, Inc. ("Beehive") and Dudley Investment Corporation ("Dudley"), to retain their interests in Clover Shopping Center, located in Cherry Hill, New Jersey, and Dudley Plaza, an office building also located in Cherry Hill, New Jersey, respectively.

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 New Jersey Administrative Code and the New Jersey Statutes Annotated permits holding of real estate investments. In 1985, Beehive purchased a 16 unit shopping center known as Clover Shopping Center, located in Cherry Hill, New Jersey. The Bank has requested permission to retain indefinitely this equity investment. Three other real estate projects are owned by Beehive, but it will divest of these investments by June 30, 1996, without additional expenditures.

Dudley constructed an eleven unit office building, known as Dudley Plaza, in Cherry Hill, New Jersey. The Bank has requested permission to retain indefinitely this equity investment. In addition to Dudley Plaza, this subsidiary owns four parcels of property representing bank premises, land held for future expansion of bank premises, and other real estate taken for debts previously contracted.

The Bank has expressed no intention of conducting further real estate investment activities through Beehive or Dudley. Furthermore, no major additional expenditures in connection with the two properties are planned. 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 Bank's interest in the two properties combined is only 1.01% of the Bank's Tier 1 capital, and the Bank would continue to be "well capitalized" in the event its entire interest was 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 Bank in association with the continued holding of these real estate properties and the risks associated with owning and leasing these particular properties.

Real estate investment activities are 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 Bank Insurance Fund. In addition certain corporate structural requirements to protect the bank from potential liability are imposed.

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 the Clover Shopping Center and Dudley Plaza 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 the Clover Shopping Center and Dudley Plaza does not pose a significant risk to the Bank Insurance Fund, and therefore may be and hereby is approved. The approval is subject to the following prudential limitations and restrictions in an effort to mitigate the volatility and other risks associated with real estate investment activities, as well to mitigate any potential conflicts of interests.

The Bank's indirect real estate investment activities in the wholly-owned subsidiaries shall be limited to those which are currently held, and that the Bank shall not engage in any additional real estate investment activities (including equity, debt, and extensions of credit) in the subsidiaries without prior written consent of FDIC; the Bank shall continue to meet all applicable capital standards; the Bank shall not engage, directly or indirectly, in any real estate investment activity with insiders or their related interests without prior written consent of FDIC; the subsidiaries shall be satisfactorily capitalized, separate and distinct in operations, maintain separate accounting and other corporate records, conduct separate board of directors meetings, maintain at least one outside director, and conduct business in such a way that customers of the subsidiaries know that the subsidiaries are separate organizations from the Bank; and, the FDIC shall have the right to alter, suspend or withdraw its approval if -circumstances change significantly. In addition, transactions between the Bank and the subsidiaries shall be made in accordance with the restrictions of Sections 23A and 23B of the Federal Reserve Act, 12 U.S.C. § 371c and S 371c-1, to the same extent as though the subsidiaries were affiliates of the Bank as defined under Sections 23A and 23B.

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