Dear Mr. Berman:

This is in response to the request by Omni National Bank ("Omni Bank") for a retroactive exemption from section 23A of the Federal Reserve Act and Regulation W to permit Omni Bank to retain an aircraft purchased from an affiliate, MKM Investment Company ("MKM"), both of Fayetteville, North Carolina.¹ Omni Bank purchased the aircraft from MKM for [ ] using a combination of cash and the proceeds from the sale of the bank's other aircraft. Omni Bank has provided an independent appraisal estimating that the fair market value of the aircraft when purchased from MKM was [ ].

Under section 23A, a bank may engage in "covered transactions," as defined by the statute, with a single affiliate up to 10 percent of the bank's capital and surplus; transactions with all affiliates are limited to 20 percent of the bank's capital and surplus.² In addition, a bank's purchase of assets from its affiliate is subject to a prohibition against the purchase of low-quality assets and must be on terms and conditions that are consistent with safe and sound banking practices.³ Omni Bank's purchase of the aircraft was a covered transaction and, based on the bank's capital and surplus at the time of the transaction, would have been limited to approximately $2.2 million.⁴

Section 23A specifically authorizes the Board, by order or regulation, to exempt from the definition of "purchase of assets" a bank's purchase of real or personal property from its affiliate.⁵ The legislative history of this section indicates that Congress gave the Board the authority to permit a bank to purchase from an affiliate certain expensive properties such as a building because "such transactions are not the type of transactions that section 23A is designed to cover."⁶

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 such bank or its subsidiary as those prevailing at the time for comparable transactions with nonaffiliated companies.⁷ In light of the appraisal provided by Omni Bank, it appears that the transaction was consistent with the requirements of section 23B. In addition, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation have reviewed the purchase in connection with this exemption request and do not object to the transaction.

The transaction should decrease Omni Bank's operating expenses, appears to be consistent with safe and sound banking practices, and was on terms that ensured the quality of the asset purchased. Accordingly, the transaction appears to be consistent with the purposes of section 23A, and the Director of the Division of Banking Supervision and Regulation, pursuant to authority delegated by the Board, and with the concurrence of the General Counsel, hereby grants the requested retroactive exemption.

This determination is specifically conditioned on Omni Bank's compliance with all the commitments and representations made in connection with the exemption request. These commitments and representations are deemed to be conditions imposed in writing in connection with granting this request and, as such, may be enforced in proceedings under applicable law. This determination is based on the specific circumstances surrounding this transaction and may be revoked in the event of any material change in those circumstances or failure by Omni Bank to continue to observe its commitments. This grant of exemption does not represent a determination concerning the permissibility of any other transactions that are subject to section 23A or concerning any other affiliates of Omni Bank.

Very truly yours,

[signed] Robert dev. Frierson

Robert deV. Frierson
Deputy Secretary of the Board

1. 12 U.S.C. � 371c and 12 C.F.R. Part 223. MKM is an affiliate of Omni Bank because 50 percent of MKM is owned by a trust that owns more than 25 percent of Omni Financial Services, the company that controls Omni Bank. See 12 U.S.C. � 371c(b)(1)(C)(i).  Return to text

2. 12 U.S.C. � 371c(b)(7)(C). Return to text

3. 12 U.S.C. � 371c(a)(3) and (4).  Return to text

4. For section 23A purposes, Omni Bank's capital and surplus totaled approximately $22.1 million, as of June 30, 2004.  Return to text

5. 12 U.S.C. � 371c(b)(7)(C).  Return to text

6. S. Rep. No. 97-536, at 32 (1982).  Return to text

7. 12 U.S.C. � 371c-1.  Return to text