BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D. C. 20551

ADDRESS OFFICIAL CORRESPONDENCETO THE BOARD

June 20, 1986

Mark Aldrich, Esq.

West Tower, Suite 7000

4000 MacArthur Boulevard

Newport Beach, California 92660

Dear Mr. Aldrich:

This is in response to your request for a

determination whether the proposed purchase by a member bank of

real estate from a partnership owned by a majority of the

members of the board of directors of the bank is subject to the

limitations and requirements of section 23A of the Federal

Reserve _Act (12 U.S.C. § 371c). We understand that

[redacted] a company owned by 6 of the 8 members of the board of directors of [redacted] 

("Bank") owns real property that is currently under

lease to Bank for its use as bank premises. Bank now proposes

to acquire title to approximately 40 percent of the total lot

for the purposes of building a permanent bank office. The

Office of the Comptroller of the Currency, by letter dated

April 9, 1986, has reviewed this transaction and determined

that the proposed purchase by Bank is permissible under the

National Bank Act and, after reviewing independent appraisals

of the property, has determined that the proposed purchase

price is reasonable and consistent with safe and sound banking

practices.

Section 23A places certain quantitative, qualitative,

and collateral requirements on transactions between member

banks and their affiliates. A company, including a

partnership, that has a majority of its directors in common

with the board of directors of a member bank is deemed to be an

affiliate of the member bank for purposes of section 23A.

12 U.S.C. § 371c(b)(l)(C)(ii). Under this general definition,

[redacted] could be deemed to be an affiliate of Bank for

purpose of requirements of section 23A.

Section 23A provides an exemption from its definition

of an affiliate for a company established solely for the

purpose of holding bank premises. 12 U.S.C. §371c(b)(2)(B).

[redacted] holds no assets other than a single parcel of
property, over 70 percent of which is currently under lease to

Bank for its use as bank premises. The property Bank proposes

to acquire from [redacted] will be used exclusively for

Bank's premises. The purchase price for the property is based

on an independent appraisal, and has been reviewed and found

consistent with safe and sound banking practice by the OCC,

Bank's primary regulator.

on these facts, it is our opinion that[redacted]

engaged in holding bank premises for purposes of

the exception from the definition of affiliate provided in

section 37lc(b)(2)(B) of the Federal Reserve Act for companies

engaged solely in holding bank premises. This opinion is

consistent with the Board's prior decisions interpreting the

provisions regarding bank premises under the Bank Holding

Company Act and other provisions of the Federal Reserve Act.

Accordingly, based on the entire record, including the fact

that the purchase price For the property appears reasonable, it

is our opinion that [redacted] [redacted] is exempt from the

definition of affiliate under the provisions of section 23A,

and therefore, the sale of real property proposed by [redacted]

to Bank is exempt from the requirements

section 23A. In this regard, we note that following the sale

proposed by [redacted] [redacted] will be engaged in

holding property that is not being used as bank premises, and

would appear thereafter tobe an affiliate of Bank engaged in

activities other than holding bank premises. Accordingly,

future transactions between [redacted] [redacted] and Bank would

appear to be subject to the provisionsof section 23A.

This opinion is based on the facts as you have

presented them, and any change in circumstances may result in a

different opinion.

Very truly yours,

(signed)

J. Virgil Mattingly, Jr.