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Appendix

In connection with the proposal by American Bank, Allentown,
Pennsylvania, to acquire the land and building that serves as the main office of American
Bank, The Jaind! Building L.P. and American Bank hereby make the following
commitments and representations to the Federal Reserve Bank of Philadelphia (the
“Reserve Bank”) and the Board of Governors of the Federal Reserve System (“Board”):

1. American Bank will not assume any liabilities in connection with the acquisition
of the building that serves as the main office of American Bank and the associated
land.

2. The Jaindl Building L.P. will make full payment and extinguish all of the
mortgage liabilities associated with the land and building (totaling $4,633,032.15
as of March 30, 2018) from the proceeds received from American Bank at the time
of consummation of this transaction.

3. American Bank will notify the Reserve Bank in writing as soon as possible
following consummation of this transaction.

The Jaind| Building L.P. and American Bank acknowledge that these
commitments and representations are deemed to be conditions imposed in writing by the
Board in connection with American Bank’s proposed acquisition and, as such, may be
enforced in proceedings under applicable law.


BOARD OF GOVERNORS
OF THE

FEDERAL RESERVE SYSTEM
WASHINGTON, 0. C. 20551

ADDRESS OFFICIAL CORRESPONDENCE
TO THE BOARD,

June 6, 2018

Paul A. Adams, Esq.

Shumaker Williams, P.C.

P.O. Box 88

Harrisburg, Pennsylvania 17108

Dear Mr. Adams:

This is in response to the request by American Bank for an exemption from
section 23A of the Federal Reserve Act and the Board’s Regulation W to permit
American Bank to purchase real property from its affiliate, The Jaind! Building LP
(“Jaindl LP”), both of Allentown, Pennsylvania.!

American Bank, a state member bank, proposes to purchase from Jaindl LP
the real property where its main office is located for a cash payment of $10.8 million.”
American Bank has provided an independent appraisal of the building, which states that
its fair market value is approximately $11.2 million. The building currently is subject to
two mortgages with a combined value of approximately $4.6 million. Jaindl LP has
committed to the Board that it will repay the outstanding mortgage liabilities in full with
the proceeds of the sale, and American Bank has committed that it will not assume any
liabilities in connection with this transaction.

Section 23A and Regulation W limit the amount of “covered transactions”
between a bank and any single affiliate to 10 percent of the bank’s capital stock and
surplus and limit the amount of covered transactions between a bank and all its affiliates
to 20 percent of the bank’s capital stock and surplus.> “Covered transactions” include an

' 12 U.S.C. § 371c; 12 CFR part 223.

> American Bank currently leases 83 percent of the building from Jaindl LP. The
remaining 17 percent of the building is leased by an unaffiliated third party. Upon
consummation, the unaffiliated third party would continue to lease office space from
American Bank at the prevailing market rate and subject to a formal lease agreement
(“Lease Agreement”).

3 12 U.S.C. § 371e(a)(1); 12 CFR 223.11-.12.


9

extension of credit by a bank to an affiliate and a purchase of assets from an affiliate. In
addition, section 23A and Regulation W prohibit a bank from purchasing low-quality
assets from an affiliate and require that all covered transactions between a bank and an
affiliate be on terms that are consistent with safe and sound banking practices.°

Because the same shareholder controls both entities, Jaindl LP and
American Bank are affiliates for purposes of section 23A and Regulation W.° Asa
result, the proposed purchase by American Bank from Jaindl LP would be a covered
transaction under section 23A and Regulation W. The aggregate amount of the covered
transaction would be approximately $10.8 million. This amount would exceed the bank’s
quantitative limit on covered transactions with a single affiliate, which is approximately
$6.8 million.’ Accordingly, American Bank seeks an exemption from section 23A and
Regulation W to enable American Bank to purchase from Jaindl LP the real property
where its main office is located.

Section 23A specifically authorizes the Board by order or regulation to
exempt transactions or relationships of a state member bank from the requirements of the
statute if (i) the Board and the FDIC jointly find that the exemption is in the public
interest and consistent with the purposes of section 23A and (ii) the FDIC finds that the
exemption does not present an unacceptable risk to the Deposit Insurance Fund.’ The
Board has routinely approved exemptions under section 23A for one-time purchases of
property of this nature by a bank. As noted in previous cases reviewed by the Board, the
purchase of a building by a bank from an affiliate appears to be the type of transaction
that Congress anticipated would be exempted from the limits of the statute. American
Bank estimates that owning rather than leasing the property would yield annual cost
savings of at least $380,000 and provide it with rental income related to the space that it
does not occupy. According to American Bank, this exemption would be in the public

4 12 U.S.C. § 371¢(b)(7)(A), (C); 12 CFR 223.3(h)(1), (3).
5 12 U.S.C. § 3710(a)(3)(4); 12 CFR 223.13, 223.15.

© Under section 23A, any company that is controlled, directly or indirectly, by or for the
benefit of shareholders who beneficially or otherwise control, directly or indirectly, the
member bank, is an affiliate of the member bank. 12 U.S.C. § 371¢(b)(1)(C)(i);

12 CFR 223.2(a)(3). Mr. Mark W. Jaindl owns approximately 43 percent of American
Bank Inc., Allentown, Pennsylvania, the parent bank holding company of American
Bank, and owns or controls, directly or indirectly, 100 percent of Jaindl LP.
Accordingly, American Bank and Jaind| LP are affiliates for purposes of section 23A and
Regulation W.

7 As of March 31, 2018, American Bank’s capital stock and surplus was approximately
$67.6 million.

§ 12 U.S.C. § 3710(£)(2)(B)(ii).


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interest because its purchase of the premises would reduce its operating expenses and
provide it with rental income related to the space that it does not occupy.

Section 23B of the Federal Reserve Act requires that any covered
transaction with an affiliate be on terms and under circumstances, including credit
standards, that are substantially the same, or at least as favorable to the bank, as those
prevailing at the time for comparable transactions with or involving nonaffiliated
companies.’ Based on the appraisal provided by American Bank, it appears that the
transaction is consistent with the requirements of section 23B. The terms of the Lease
Agreement also appear to be consistent with section 23B, since the third-party tenant
would lease office space from American Bank at the prevailing market rate.

In light of these considerations and all the facts presented, the transaction
appears to be consistent with the purposes of section 23A and in the public interest. The
FDIC has informed the Board that it finds that the exemption (i) is in the public interest
and consistent with the purposes of section 23A and (ii) does not present an unacceptable
risk to the Deposit Insurance Fund. Accordingly, the Director of the Division of
Supervision and Regulation, acting pursuant to authority delegated by the Board, and
with the concurrence of the General Counsel, hereby grants the requested exemption.

This action is based on the representations made in your request and in
related correspondence and on the commitments provided in connection with the
proposal. The commitments constitute conditions impose in writing in connection with
this action and, as such, may be enforced in proceedings under applicable law.

Sincerely yours,

Ann E. Misback (signed)

Ann E. Misback
Secretary of the Board

Attachment

ce: Federal Deposit Insurance Corporation
Pennsylvania Department of Banking and Securities

9 12 U.S.C. § 371c-1(a)(1).