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Decisions on Bank Applications

The Rome Savings Bank


RE: The Rome Savings Bank Rome, New York

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 The Rome Savings Bank, Rome, New York ("the Bank"). The bank requests the FDIC's consent for its wholly-owned subsidiary to retain its interest in a 27,400 square foot lot, on which is located a 1,500 square foot, single story commercial building, contiguous to the Bank's New Hartford branch.

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. In addition, the New York General Regulations of the Banking board permits holding of real estate investments. Real estate investment activities are subject to a high degree. of market risk and other specialized risks specific to real estate ownership. 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 Bank purchased the subject property in 1990 to obtain additional parking for customers and epployees of the branch. A 20 year lease was signed with the former owner of the property and tenant of the building, Dunkin' Donuts of New York, Inc. Concurrently, an easement was granted to utilize the back 60 feet of the lot for additional branch parking. The easement also allowed bank customers easier access to the ATM which was subsequently placed on the edge of the branch property. Bank utilization of the property via the easement accounts for approximately 22% of the lot. The bank has expressed no intention of conducting further real estate investment.

Having found that the Bank 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. The Bank's interest in the property is only 1.95% of the Bank's Tier 1 capital, and the Bank would continue to be "well capitalized" even in the event its entire interest in the venture 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 Bank.

Having found that the activity in question involves the retention of an. investment the level of which compared to the Bank's capital is now, and is a ted in' the future to remain, a nominal portion of the Bank's cap tal; 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 property 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 shall be limited to its current interest in the property; the title to the property shall be transferred to Clocktower within 30 days of receipt of this approval; the Bank shall continue to meet all applicable capital standards; 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 subsidiary shall be made in accordance with the restrictions of Section 23A and 238 of the Federal Reserve Act, to the same extent as though the subsidiary were an affiliate as da"ned-herein. Finally, the FDIC notes that the foregoing approval is unique to this application, that it was significantly influenced by the bank's acquisition of the property prior to the effective date of Section 24(d), and that its view of da nova acquisition of such interest might well be different.