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Ware Co-operative Bank


RE: Ware Co-operative Bank Ware, Massachusetts

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 of the Federal Deposit Insurance Act, an application has been filed with the Federal Deposit Insurance Corporation by Ware Co-operative Bank, Ware, Massachusetts ("the Bank"). The Bank requests the FDIC's permission to retain its interest in its former main office located at 33 Main Street, Ware, Massachusetts ("33 Main"), until the Bank is able to sell 33 Main.

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 activities 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 activities pose no significant risk to the deposit insurance fund. The Massachusetts General Code permits holding of real estate investments.

The Bank has been engaged in this activity since 1982, when it vacated its existing office for new quarters. The activity is confined to the retention and management of the office building until it is sold. The Bank has expressed its intention not to become involved in any further real estate investment activities. No major additional expenditures in connection with the property are planned.

The Bank is pursuing sale of the property, and requests permission to hold this investment until market conditions improve and it can be sold without a loss. Currently, the market is soft, and near term divestiture under such conditions would likely result in 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 Bank's interest in the property is only 3.44% of the Bank's Tier 1 capital, and the Bank would continue to be "well capitalized" in the event its entire interest in the investment were deducted. In connection with this application, the FDIC has taken into consideration the satisfactory financial and managerial resources and future earnings prospects of the Bank.

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 Bank's interest in 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 acceptable; 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 conditions. After considering the volatility and other risks associated with real estate activities, the FDIC imposes these conditions for prudential reasons, including the potential for improper transactions which are not at arm's length.

The Bank shall, by December 19, 1996, remove 33 Main to a majority-owned subsidiary which shall be satisfactorily capitalized, be separate and distinct in operations from the operations of the Bank, maintain separate accounting and other corporate records, conduct separate board of directors meetings, and contract with the bank for any services on terms and conditions comparable to those available to or from independent entities; the Bank's real estate investments shall be limited to those currently held; the Bank shall continue to meet all applicable capital standards; the Bank shall divest itself of-all its interest in 33 Main within five years of the date of the approval letter, and if it has not divested within three years of the date of the approval letter, then the Bank shall submit a divestiture plan to the FDIC; and the FDIC shall have the right to alter, suspend or withdraw its approval if circumstances change significantly. In addition, the Bank shall not engage directly, or indirectly through the subsidiary, in any activity or transaction relating to 33 Main which involves insiders or their related interests without the prior written consent of the FDIC, and transactions between the Bank and the subsidiary shall comport with the restrictions of Sections 23A and 23B of the Federal Reserve Act, 12 U.S.C. SS 371c and 371c-1, to the same extent as though the subsidiary were an affiliate of the Bank as defined in Sections 23A and 23B.

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 interest in real estate prior to the effective date of Section 24(d), and that its view of de novo acquisition of such interests would likely be different.